Here is a surprising fact from the Social Security Administration (SSA): “Among older social security recipients, 37% of men and 42% of women receive 50% or more of their income from social security.” It is also becoming more startling: “… 12% of men and 15% of women are dependent on social security for 90% or more of their income.”
Clearly, social security income will be crucial for most of us. That is why we should not make decisions or take action on it until we have a solid understanding of at least the basics of social security. Here are four questions you e.g. must be able to answer.
1. What is my full retirement age?
First, you need to understand that your social security benefits are based in part on yours full retirement age, which is 66 or 67 (or somewhere in between) for most of us. If you retire at your full retirement age, you will be able to charge full benefits to which you are entitled, based on your earnings history. Much depends on the age, so be sure to learn what yours is.
2. How much can I expect to collect in benefits?
Next, learn how much you can expect to receive in benefits so you can plan, save, and invest better for your future income needs. You may not need to save or invest much if Social Security will provide much of what you need – but that’s not likely at all. For context, know that the average monthly retirement benefit recently was $ 1,661 – about $ 20,000 a year. If you earned more than average in your working life, you would receive more, but probably not as much as you would expect. The maximum benefit for those who earned the maximum amount over 35 years of work was recently only $ 4,194 – about $ 50,000 a year.
You can get a good estimate of your future social security benefit by visiting SSA’s website and creating a “my social security“account, free. Once you have done so, you will at all times be able to look in to see SSA’s records of your earnings and your expected benefits. (Note that if you are still far from retiring , estimates can change a lot as your career and earnings develop.)
3. When is the best time to start collecting benefits?
If you are not pleasantly surprised at how much you can expect from Social Security, know that there are some things you can do to increase your social security benefits. An important strategy is to delay starting to collect them. You can start collecting as early as age 62 and as late as age 70. If you start before your full retirement age, your checks will shrink (though you will collect more of them) while delays beyond that will make them about 8% bigger for each year you delay. This is a strong strategy for many, but not all, people. If you can continue working beyond your full retirement age and you have a good chance of living a longer-than-average life, the deferral strategy can serve you well. But if your family is generally short-lived, or you are not in good health, or you simply need the income soon, then it is not so terrible to start collecting early.
The decision as to when to start collecting your benefits is very important, so read up on it and consider the pros and cons of your options.
4. Have I coordinated with my spouse?
Finally, if you are married, take the time to read up on Social Security strategies for couples. Here’s one: If you have very different earnings histories, consider trying to postpone the beginning by charging the benefits of the higher earnings for as long as possible, up to 70 years. It will make these benefits, which would already be higher than low-wage earners, as high as possible. This can serve you both well while you are both alive, and it can be a gift to the lower earner if the higher earner dies first. When a spouse dies, the survivor receives only one social security benefit – the higher of the two. So it may be smart to try to make at least one benefit as high as possible.
The more you know about social security, the better decisions you will make about it, and it can mean many more thousands of dollars coming your way through your retirement.