There's a lot to love about Social Security. Once you qualify for it -- after paying into the system for many years through taxes -- you can look forward to guaranteed income in your later years. Better still, that income increases over time via cost-of-living adjustments that will help you keep up with inflation.
Clearly, Social Security income is likely to be rather important to the majority of us, so we should learn as much as we can to make the most of it. For starters, learn enough to answer the following questions.
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1. How much can you expect to collect from Social Security?
It's important to know how much you can expect Social Security to contribute to your retirement income so that you know how much you'll need to save on your own to meet your needs. Here's a bit of a wake-up call: The average monthly retirement benefit was recently $1,828 a month or nearly $22,000 per year. Yes, you'll receive more than that if your earnings have been above average, but not that much more. The maximum possible monthly benefit was recently $4,555, or close to $45,000 annually, but very few people can achieve that kind of payout.
You can get a much clearer idea of how much you can expect to collect by heading over to the Social Security website and setting up a "my Social Security" account. Then you'll be able to access the Social Security Administration's (SSA's) record of your earnings by year, which can allow you to spot any errors and then have them fixed. You'll also be able to see estimates of how much you stand to collect in the future, depending on various factors.
Even if you're still young, it can be illuminating to set up an account. This can help protect you from scammers, too, because some troublemakers set up accounts for people who haven't done so yet in order to try to claim their benefits. So set up your account and then check in on it every now and then.
2. When is the best time for you to start receiving benefits?
This is a critical question each of us needs to consider: When is the best time to start collecting your benefits? Here are some things to know:
- You can start as early as age 62 and as late as age 70 -- though the "full retirement age" at which we can start collecting our full benefits is 66 or 67 for most of us.
- If you start collecting early, your benefit checks will be smaller, and if you start late, they will be bigger.
- While starting early means you get smaller checks, you'll likely get many more of them than will someone who starts collecting at age 70.
There's no one-size-fits-all best age at which to start collecting your benefits. Each of us needs to consider our own circumstances and to think about how long we're likely to live, too. If you stand a decent chance of living a shorter-than-average life or you simply need that income soon, starting to collect early is very reasonable. If there's a good chance you'll live a longer-than-average life and you're able to delay starting to collect, that can be a powerful strategy.
3. Have you factored Social Security into your overall retirement plan?
Finally, be sure that you put together an overall retirement plan that details when you hope to retire, what kind of income you expect to need, and how you'll build the nest egg you'll need. Many retirees will have multiple income streams, such as dividend, interest, annuity, pension, and/or Social Security income.
Be sure you're factoring Social Security income into your planning. If you estimate that you'll need income of $75,000 annually when you start retirement, and you expect to collect $35,000 annually from Social Security, then you'll need to save, invest, and set up additional income streams to deliver around $40,000 per year.
The more you know about Social Security, the smarter the decisions you can make regarding it and the more you'll be able to collect from it. Why settle for benefits of $22,000 per year when you might be able to collect $30,000 or more?
