Here’s a startling 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 also becomes more surprising: “…12% of men and 15% of women depend on Social Security for 90% or more of their income.”
Obviously, Social Security income will be vital for most of us. That’s why we shouldn’t make any decisions or take any action on this until we have a solid understanding of at least the basics of Social Security. Here are four questions you should be able to answer, for example.
1. What is my full retirement age?
To start, understand that your Social Security benefits are based in part on your full retirement age, which is 66 or 67 (or somewhere in between) for most of us. If you retire at full retirement age, you may receive the full benefits to which you are entitled, depending on your earnings history. It all depends on that age, so be sure to learn what yours is.
2. How much can I expect to receive in benefits?
Next, learn how much you can expect to receive in benefits, so you can plan, save, and better invest 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, the average monthly retirement benefit was recently $1,661, or about $20,000 per year. If you’ve earned more than average in your working life, you’ll receive more, but probably not as much as expected. The maximum benefit, for those who have earned the maximum amount over 35 years of work, was recently only $4,194, or about $50,000 a year.
You can get a good estimate of your future Social Security benefits by visiting the SSA website and creating a “my social security” account, free of charge. Once done, you will be able to log in at any time to view SSA records of your income and projected benefits. (Note that if you’re still a long way from retirement, estimates can change a lot as your career and income evolve.)
3. When is the best time to start receiving benefits?
If you’re not pleasantly surprised by how much you can expect from Social Security, there are things you can do to increase your Social Security benefit checks. A major strategy is to delay the start of their collection. You can start cashing in from age 62 until age 70. Starting before your full retirement age will make your checks smaller (although you’ll get more), while delaying beyond that will make them about 8% bigger for each. year you delay. This is a powerful strategy for many people, but not all. If you can continue to work beyond full retirement age and have a good chance of living a longer than average life, the deferral strategy may be useful to you. But if your family is generally short-lived, or you’re not in very good health, or you just need an income soon, then it’s not so bad to start collecting early.
The decision about when to start collecting your benefits is very important, so read 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 learn about social security strategies for couples. Here’s one: If you have a very different earnings history, consider trying to delay the start of your highest income benefit for as long as possible, until age 70. This will make those benefits, which were already going to be higher than the lowest earners, as high as possible. It can be useful to both of you while you’re both alive, and it could be a boon for the lower earner if the higher earner dies first. When a spouse dies, the survivor receives only one social security benefit, whichever is higher. So it might be a good idea to try to make at least one perk as high as possible.
The more you know about Social Security, the better decisions you’ll make about it, and that can mean several thousand extra dollars in handouts throughout your retirement.