Daydreaming about getting fired for telling your boss what you really think? Then it's no wonder you're interested to know what Social Security will pay out if you claim early. It's an easy question. Take these five steps to estimate the value of the Social Security check coming your way if you start benefits at age 62.
1. Set up your online access
Begin by visiting my Social Security and setting up an online account. Once you log in, you'll see your projected benefits at three claiming ages: 62, your full retirement age (FRA), and 70. The benefit amount shown for age 62 might be the answer you need, but there are a few extra things you should do to verify its accuracy.
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2. Review your earnings history
While you are still logged into your account, look for the link to your earnings history. Click on it to see a full list of your wage income, dating back to your earliest days of working. Your Social Security benefit is calculated from these numbers. If some of your income is missing or incorrect, your benefit estimate may also be wrong.
Review your earnings history alongside your tax returns, paying particular attention to the years you earned the most. The Social Security formula only considers your highest-paid 35 years of working, so any issues in your lower-wage years may not be relevant.
If you see any mistakes, gather up W-2 forms, pay stubs, or tax returns showing your correct wages. You'll have to call the Social Security Administration, explain the problems you see, and present your documentation to get your earnings statement corrected.
3. Estimate your future earnings
The benefit estimate you see in your online account assumes your earnings will remain the same for the rest of your working years. If you agree with that assumption, you don't have to do anything here. But if you plan on getting a raise or even a part-time job to supplement your earnings, that benefit estimate may be too low.
Look for the chart in your account showing your benefit amounts at different ages. Near the top, you should see an estimate for your average annual future salary. You can tap on that value to adjust the number and recalculate your benefit. You can also use this feature to understand how much impact your future salary would have on your benefit. Simply input different salary levels and see how your benefit changes.
4. Check different claiming ages
If you don't like the benefit estimate you see for claiming at 62, try testing other claiming ages. You can also do this right from your account, using the slider below the benefit chart. Move the slider to age 63, for example, and you'll see a new, higher benefit estimate. Move it again to 63 and 1 month, and the benefit goes up again.
Here's how the math works. You qualify for your full benefit at FRA. When you claim early, your benefit is reduced according to the number of months until you reach FRA. For the first 36 months, the monthly reduction is five-ninths of 1%. For any months beyond 36, the monthly reduction is five-twelfths of 1%. Delaying your claim for even one month translates to higher Social Security income, because you reduce the number of monthly reductions applied to your benefit.
5. Know the impact of continuing to work
When you claim Social Security at 62, know that you are subject to a cap on wage income. For every $2 you earn above the cap, your Social Security benefit is reduced by $1. The cap changes annually, but it's $18,960 in 2021. If you expect to earn $1,000 monthly from Social Security, it only takes wage income of about $43,000 to wipe out your benefit entirely.
Once you reach your FRA, the earnings restriction falls away. You can work and earn as much as you want, without any reduction to your benefit.
Managing your Social Security
Your online account at my Social Security is a powerful tool that'll tell you what benefit you'll get at 62. It's also handy for tracking your earnings and estimating your benefits under different scenarios. Once you dive in and start exploring the value of delaying Social Security, you may even decide to extend your timeline. And then you can start daydreaming about more pleasant things, like a comfortable and relaxing retirement.
