5 Things You Need to Know About Social Security Benefits


5 Things Retirees Need to Know

About Social Security Benefits

Social Security provides an important source of guaranteed income for most Americans. Choosing the right claiming strategy is even more important under new Social Security regulations.

For most Americans, Social Security will provide a significant portion of their income in retirement. According to Social Security Administration (SSA) statistics, Social Security benefits account for about 34 percent of retirement income for the average American.[i] One of the biggest mistakes today’s retirees can make is to underestimate the importance of Social Security in their retirement strategies. In an era of vanishing pensions and volatile markets, Social Security offers government-guaranteed income that isn’t vulnerable to market risk, can’t be outlived, and can provide for your loved ones after your death.

What Is Social Security?

In this context, Social Security is a federal government–sponsored retirement benefit designed to replace some of your income in retirement. If you or your spouse have worked for at least 40 quarters and paid taxes on the income, you may be eligible to collect benefits in retirement.

The Social Security landscape changed dramatically in 2015 when Congress abolished several advanced claiming strategies that helped retirees increase lifetime income. The new rules make it more important than ever to make informed decisions when incorporating Social Security into your overall financial strategies.

In this article, we will learn more about your benefits and how to maximize your household’s lifetime income from Social Security. Take note of any thoughts or questions you may have as you read so that you can discuss your personal situation with a qualified financial professional.

1. Your Age Affects the Benefit You Will Receive

The earliest age at which you can file for Social Security (unless you qualify for disability) is 62, but you won’t be able to collect your full benefit then. Instead, the SSA reduces your benefits by 25 percent if your full retirement age (FRA) is 66 or by 30 percent if it’s 67. So, if your full monthly benefit at age 66 were $1,000, you’d only receive $750 each month if you started collecting at age 62. That reduction in benefits will be permanent.

You will be eligible to collect 100 percent of your benefit at your FRA, which is age 66 for anyone born between 1943 and 1954, 66 plus a two- month delay per birth year for those born between 1955 and 1960, and age 67 for anyone born after 1960. For example, if you were born in 1951, your FRA is 66. If you were born in 1956, your FRA would be 66 years and four months.[ii]

Many Americans are forced to file for benefits early for financial reasons, which can cost them dearly in lost income. If you can afford to wait until your FRA, you’ll be eligible for 100 percent of your Social Security benefit. If you can afford to wait even longer, your benefit will increase by up to 8 percent every year until age 70, permanently. So, if your basic benefit were $1,000 at your FRA of age 66, it would increase to $1,320 per month, or 132 percent of your benefit, by waiting until age 70 to take it. If you were born after 1942, you’ll qualify for the 8 percent credit each year.[iii]