Have you looked into your Social Security benefits and decided it was just too confusing to deal with right now? You wouldn’t be alone. It involves a lot of numbers and calculations, and not surprisingly there are some pretty detailed rules. But Social Security plays an important part in most people’s retirement plan, so we’ve done a little simplifying to help you understand your options and how it all works.
Accessing your account information online. The amount of the benefit you get each month is determined by a formula based on your work history and how much you’ve contributed to the fund (spousal benefits may be calculated differently). So how do you know what the amount will be? To find your personal benefits, you need to create an account on the Social Security Administration (SSA) website. The SSA has access to your records and can calculate your exact benefit.
What is your full retirement age? While we tend to think of retirement age as 65, what is known as your “full retirement age” according to the U.S. government is different and depends on the year you were born. The SSA website has an informative chart that enables you to easily determine your full retirement age. But as an example, for those born before 1955, full benefits begin when they turn 66 (which would have occurred by 2020). For those born in 1955, that changes to 66 and 2 months, then 66 and 4 months if you were born in 1956 and so on. If you were born in or after 1960, your full retirement age is 67. Keep in mind that, although changes in the full retirement age don’t happen often and are generally phased in gradually, they can occur.
The impact of accelerating vs. delaying benefits. The earliest most people can begin receiving benefits is age 62, but your benefits will be lower if you begin receiving them before your full retirement age (there are different rules for other Social Security benefits, such as those for disability or survivors). Monthly benefits are reduced by a percentage for each month between your actual retirement date and your full retirement date.
If you start receiving benefits at your full retirement age, your monthly benefit will be larger than if you elect to receive benefits earlier. And if you wait beyond full retirement age, the monthly benefits are even higher. Once you reach 70, however, your monthly benefit stays the same, and there are no more increases except for the annual cost of living increases that all recipients get.
To find out how much your payments will be depending on when you elect to start receiving benefits, go to the SSA’s online calculation tool. The calculator will use your date of birth and desired retirement age to show the effect of your retirement choice on the benefit you receive.
A very personal choice. The decision of whether to begin receiving your benefits before or after full retirement age rests on your own individual circumstances. There are some who advocate taking benefits somewhat earlier than full retirement, arguing that — depending on your health history and life expectancy — you could receive more in total benefits by filing for them earlier.
If you expect to live into your late 80s, or 90s, then delaying the payments may make sense. Or, perhaps you have a spouse or other family member who requires special care. What is the value of being able to “throttle back” and devote more time to them as opposed to working to full retirement age or beyond? There is no right answer for everyone when it comes to making this important decision.
For help with Social Security retirement planning, talk with a financial professional who knows the system and the rules. Then do what’s best for you and your family.