There is one misconception in particular that the majority of near retirees share. And if you fall for it, it could cost you hundreds of dollars a month.
The Costly Mistake You May Not Realize
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. For those born before 1960, your FRA is 66 or 66 and a certain number of months, depending on the exact year of your birth.
By making a request to your FRA, you will receive the total amount of the benefit that you are entitled to receive. 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 benefits will only be reduced until you reach your FRA, in which case you will start receiving your full benefit amount. In fact, nearly 70% of baby boomers share this belief, according to a Nationwide survey. However, the truth is that when you make a claim before your FRA, you will receive lower monthly payments for the rest of your life. If you expect your benefit amount to increase once you reach your FRA, you might have a costly surprise.
How this misconception could affect your retirement
If you make an early claim assuming your monthly payments will increase to your FRA, you may not be collecting nearly as much each month as you expect.
The average retiree receives $ 1,514 per month in benefits, according to the Social Security Administration. Suppose you have a 67-year-old FRA and you would receive $ 1,514 per month claiming at that age. By applying early at age 62, your benefits would be reduced by 30%, leaving you with $ 1,060 per month.
In other words, you might expect a $ 450 per month increase in benefits once you turn 67, but in reality, you’ll be stuck with those little checks for life. This could have a major impact on your retirement, especially if you rely on Social Security for a substantial portion of your income.
Ways to increase the amount of your benefits
If Social Security benefits are to be a major source of income for you in retirement, it’s a good idea to make sure you’re doing everything you can to collect as much as possible each month.
One way to increase the size of your monthly checks is to delay claiming benefits. While waiting for your FRA to apply for social security, you will receive the total amount of your benefits plus a bonus of up to 32% each month. Because your benefit amount is usually locked in for life once you start claiming, when you delay benefits you will receive larger checks each month for the remainder of your retirement.
You can also increase your benefits by 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 from your FRA) by taking an average of your income over the 35 highest-earning years of your career, then taking it into account. adjusting for inflation. By working for more than 35 years or by increasing your income, you can increase your average income as well as the amount of your benefits.
You don’t need to know all the details of 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.