Retirement is an exciting milestone in life, and Social Security benefits can go a long way toward building a financially secure future.
The program can be complicated and confusing at times, though, so it's important to ensure you have a solid understanding of your benefits before you begin claiming. In most cases, you only get one opportunity to file. The more thorough you are now, the better prepared you'll be.
While everyone's situation will be different, there are three critical questions to ask yourself before you begin claiming benefits.
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1. Do you have a rough idea of your benefit amount?
Knowing how much you can expect to receive from Social Security will make it easier to gauge whether your savings are enough to retire comfortably. Retiring on benefits alone is incredibly difficult, considering the average retiree only collects around $1,900 per month, as of April 2024. Most people, then, will need a substantial amount of savings in addition to benefits.
If you're not sure of your benefit amount, you can check your Social Security statements through your online mySocialSecurity account. Your statements will provide an estimate of your benefit amount based on your real earnings, which can help determine how much you can rely on your checks in retirement.
2. Do you know how your age will affect your payments?
The estimate from your statements is the amount you'll collect at your full retirement age (FRA), which is between ages 66 and 67, depending on your birth year. Your FRA is the age at which you'll receive 100% of your benefit based on your career earnings.
If you file before or after your FRA, it will affect your monthly payments. Begin claiming as early as possible at age 62, and your benefit will be permanently reduced by up to 30%. By delaying benefits past your FRA (up to age 70), you'll collect a bonus of at least 24% per month on top of your full benefit amount.
There's not necessarily a right or wrong age to take Social Security, as it will depend on your unique situation. But to avoid any unpleasant surprises, it's important to understand how your age will affect your payments before you begin claiming.
3. Do you have a backup plan if benefits face cuts in the future?
It's no secret that Social Security is facing challenges, and there's a chance that benefit cuts could be on the horizon.
The program is funded primarily by payroll taxes, but in recent years, it's been paying out more in benefits than it's receiving in income. To cover the deficit (and avoid benefit cuts for now), the Social Security Administration has been pulling money from its trust funds.
However, those trust funds are quickly being depleted. According to the Social Security Administration's most recent estimates from May 2024, the trust funds could run dry by 2035. At that point, the program's income sources would only be enough to cover around 83% of scheduled benefits.
In other words, if Congress can't find a solution to the program's cash shortage by 2035, benefits could be cut by close to 20%. While there's not much you can do to prevent potential cuts, it may be wise to have a backup plan ready just in case -- whether that's saving more now, delaying benefits to earn larger checks, or cutting back on costs to better preserve your nest egg.
Social Security can be a lifeline in retirement, so it's important to ensure you're making the most of your benefits. By preparing as much as possible heading into your senior years, you can set yourself up for a more comfortable retirement.
