Many Americans -- millions of them, in fact -- don't think too much about retirement and don't plan for it, either. That's a costly mistake, because the most comfortable retirements are not arrived at by chance; each of us should be estimating how much income we'll need in retirement and then figuring out how we'll get it.
Social Security will likely provide a big chunk of our retirement income. Indeed, it delivers about 30% of elderly folks' income in America. So take some time to learn more about Social Security, so that you can make smart moves regarding it and avoid regrettable ones -- like the ones that follow.
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1. Not knowing what to expect from Social Security
For starters, it's good to have at least a rough idea of how much income to expect from Social Security. On average, beneficiaries are collecting $1,837 per month, as of June, 2023 -- which amounts to about $22,000 annually.
There are cost-of-living adjustments (COLAs) that will increase that sum over time. And if you've earned more than average in your working life, you'll collect more than that average -- but perhaps not that much more. To get a clearer estimate of what you can expect, set up a "my Social Security" account at the Social Security Administration (SSA) website. Once you do, you can click in any time for the latest estimates, based on your earnings. It's dangerous to be expecting too much from Social Security.
2. Not checking your earnings record
Speaking of your earnings record, make sure it's correct. Via your "my Social Security" account, you can see exactly what the SSA is using when it calculates your benefits or estimates of benefits. If any numbers seem wrong, look into them and have them corrected, if necessary. That can lead to bigger benefit checks in the future!
And if you're a high earner, know that there's an earnings cap each year, so if you earned a lot in any given year, the record may only show you having earned the cap -- which is $160,200 for 2023.
3. Not knowing your Full Retirement Age
Next, know that each of us has a "Full Retirement Age" -- the age at which we can start collecting the full benefits to which we're entitled, based on our earnings history. For most people working now, it's age 67. The table below can help you identify your Full Retirement Age:
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4. Not understanding how timing affects your benefits
While you can start receiving your full benefits at your Full Retirement Age, you can opt to start collecting your benefits as early as age 62 -- in which case you will receive smaller checks (but more of them). You can also delay starting to collect your benefits, up to age 70, and they will grow by about 8% for each year beyond your Full Retirement Age that you delay. (They stop growing after age 70, though.)
The table below shows how much of your full benefits you'll collect based on when you start collecting:
|
Start Collecting at: |
Full Retirement Age of 66 |
Full Retirement Age of 67 |
|---|---|---|
|
62 |
75% |
70% |
|
63 |
80% |
75% |
|
64 |
86.7% |
80% |
|
65 |
93.3% |
86.7% |
|
66 |
100% |
93.3% |
|
67 |
108% |
100% |
|
68 |
116% |
108% |
|
69 |
124% |
116% |
|
70 |
132% |
124% |
Data source: Social Security Administration.
Clearly, it's vital to give the question of when to start receiving Social Security careful thought. There's no one best age at which everyone should claim their benefits. There are good reasons to start collecting checks early, and good reasons to delay until 70, too.
5. Not considering your big picture
Finally, be sure to consider your big picture when making Social Security decisions. That would include all your income sources, your expected expenses in retirement, and your spouse's circumstances, too, if you're married.
For example, you might decide to delay claiming you benefits until age 70 in order to maximize those checks -- because they're pretty much guaranteed (unless Congress doesn't strengthen the program) and have built-in inflation adjustments. In order to delay, you might need to tap other income sources, such as IRAs or 401(k)s, more heavily until age 70.
Meanwhile, if you have earned more than your spouse, your benefit is likely to be bigger -- and when one of you dies, the survivor gets to collect the bigger benefit. So by maximizing your benefit, you could help your spouse out a lot.
Social Security gets a lot more interesting when you realize that it can make your retirement a lot more comfortable -- as long as you avoid the blunders we've discussed here.
