Social security can be a confusing topic, but given that 88% of workers expect to be at least somewhat dependent on their retirement benefits, according to a Gallup survey, it is important to understand as much as possible to maximize monthly checks.
In particular, there is one misconception that most retirees are divided. And if you love it, it could potentially cost you hundreds of dollars a month.
An expensive mistake that you may not realize you are making
One of the most important factors to understand when it comes to social security is your full retirement age (FRA). If you were born in 1960 or later, your FRA is 67 years old. For those born before 1960, your FRA is 66 or 66 years and a certain number of months, depending on the exact year of your birth.
Upon receipt of the application in your FRA, you will receive the full amount of payments that you are entitled to collect. You can apply earlier than your FRA, but you will receive smaller checks each month.
A common misconception is that if you apply early, your payments will only decrease until you reach the FRA, and then you will start receiving the full amount of the payments. In fact, almost 70% of baby boomers share this view, according to a survey conducted by Nationwide. However, the truth is that when you apply to your FRA, you will receive lower monthly payments for the rest of your life. If you expect your payout to increase when you reach your FRA, you may be in for an expensive surprise.
How this misconception can affect your retirement
If you are applying early, assuming that your monthly payments will increase on your FRA, you may not collect nearly as much monthly as you expect.
According to the Department of Social Protection, the average retiree collects $ 1,514 a month. Let’s say you have an FRA of 67 and you get $ 1514 a month demanding a penalty from that age. If you apply early at age 62, your payments will be reduced by 30%, leaving $ 1,060 per month.
In other words, you can expect to increase your privileges by $ 450 a month when you turn 67, but you’re actually stuck with these smaller checks for life. This can have a serious impact on your retirement, especially if you are going to rely on social security for a significant portion of your income.
Ways to increase your payout
If Social Security payments become a significant source of income for you in retirement, it’s a good idea to make sure you’re doing your best to collect as much as you can each month.
One way to increase your monthly checks is to defer benefits. By waiting for your FRA to apply for social security, you will receive the full amount of payments plus a bonus of up to 32% per month. Because your amount of payments is usually blocked for life, once you start claiming when you delay payments, you will receive larger checks each month until the end of your retirement.
Other options to increase your benefits include working longer or increasing your income. The Social Security Administration calculates the amount of your basic benefit (or the amount you will receive by claiming your FRA), taking the average of your income for the 35 highest incomes in your career, and then adjusting it for inflation. By working for more than 35 years or increasing your income, you can increase average earnings as well as the amount of benefits.
You don’t need to know all the little details about how your benefits are calculated, but by understanding the basics, you can take steps to increase the size of your monthly checks. Social security benefits are a lifeline for millions of retirees, so the more you get each month, the better your chances of enjoying a comfortable retirement.