Since it was signed into law in 1935, Social Security has provided retirement income for tens of millions of Americans. It's critical to many of them, keeping them out of poverty -- and it may end up being critical to you. Kathleen Romig, Director of Social Security and Disability Policy, Center on Budget and Policy Priorities, says: "Without Social Security benefits, a staggering 38% of older adults would have incomes below the poverty line, all else being equal..."
Thus, it's important to learn about Social Security and to make smart decisions regarding it. You'll likely want to refer to the most important Social Security table as you make decisions.
Image source: Getty Images.
Social Security basics
Social Security is a clever system that works by taxing workers' earnings and then using those dollars to pay out benefits to retirees. The system has worked well for many decades, but it's facing some challenges now, since many people are living longer and retiring earlier than they used to.
You can claim your Social Security benefits as early as age 62. Your checks will be smaller, but you'll receive more of them than if you'd started later. You can also delay, up to age 70, to make your checks bigger (though you'll receive fewer, in total). The system is designed so that for those with average-length lives, it shouldn't make much difference when you start collecting your benefits.
But few people know whether they'll live lives that are shorter or longer than average. And if you're married, you might want to delay collecting simply so that your spouse can collect your larger benefit if you die first. Thus, each person needs to think through the issue of when to claim Social Security carefully, as it can make a big difference in the total benefits received.
When to claim your Social Security benefits is a critical decision
Below is the most important Social Security table -- important because it shows how much of your full benefits you'll receive depending on when you claim your benefits. Note that much depends on your "full retirement age" (which is somewhere from 66 to 67 for most of us).
|
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.
The table shows that if your full retirement age is 67 (as it is for anyone born in 1960 or later) and you collect as soon as possible, at age 62, your checks will be only 70% of what you'd get if you waited until age 67. If you delay until age 70, though, your checks will be 124% of your full benefits.
Let's illustrate that with an example. For context, know that as of May, the average monthly retirement benefit was about $1,917 -- or only about $23,000 per year. Lets assume that your earnings have qualified you for a $3,000 check at your full retirement age of 67. If you start collecting at 62, that will drop down to around $2,100 per check. If you delay until age 70, you'll be getting around $3,720 per month. (Again, remember that you'll be getting many more of the smaller checks or fewer of the bigger ones.)
For some people, starting early makes good sense. For others -- in fact, for most people -- waiting until age 70 will maximize total benefits.
So think through your timing decisions carefully, discussing and coordinating with your spouse if you're married. Each of us needs to be formulating a solid retirement plan, and Social Security is likely to play a significant role in it.
