Even if you're not retiring in 2019, it still helps to read up on Social Security and learn what to expect from the program. Here are a few key tips that will help you make the most of your benefits.
1. Know your full retirement age
Your Social Security benefits are calculated based on your earnings during your 35 highest-paid years on the job. You're then eligible to receive those benefits in full once you reach full retirement age. That age isn't the same for everyone; it varies based on your year of birth, as follows:
Year of Birth
Full Retirement Age
66 and 2 months
66 and 4 months
66 and 6 months
66 and 8 months
66 and 10 months
Though you're allowed to claim Social Security as early as age 62 and as late as age 70, keeping the above age in mind is important to your filing decision.
2. Review your earnings record annually
Each year, the Social Security Administration (SSA) issues you an earnings statement. If you're 60 or older, you'll get it in the mail, and if not, you can access it on the SSA's website. It's important to review that document annually for two reasons. First, because it'll provide an estimate of what your benefits will look like once you reach full retirement age. The closer you are to retirement, the more accurate that estimate will be.
Secondly, there's a chance your earnings statement could contain an error about your income that works against you. For example, your statement one year might show that you only earned $40,000 when, in fact, you earned $80,000. Correcting such mistakes is crucial, because as stated earlier, your Social Security benefits are determined based on your income history, and an error like that could cause your benefits to go down needlessly.
3. Understand the drawbacks of filing early
The SSA will allow you to start claiming benefits as early as age 62. But for each month you file ahead of full retirement age, your benefits will be reduced. If you file at age 62 with a full retirement age of 66, you'll lose 25% of your benefits. Do so when your full retirement age is 67, and you're looking at a 30% reduction. Furthermore, any reduction you face will remain in effect permanently unless you manage to withdraw your benefits application within a year and also repay the SSA every dollar it paid you, which is easier said than done.
4. Recognize the benefits of filing as late as possible
Just as claiming Social Security early will cause a reduction in benefits, delaying your filing past full retirement age will cause them to increase. For each year you hold off on claiming Social Security beyond that point, you'll accrue delayed retirement credits that boost your benefits by 8% a year, up until you turn 70. Keep in mind that while the SSA won't force you to claim benefits at 70, there's no financial incentive to wait past that point. In fact, if you hold off on filing for too long, you'll risk losing out on money that could've been yours.
5. Realize your health should play into your filing decision
There are many factors that will likely go into your decision of when to claim benefits, like the extent to which you need the money and whether or not you're still working. But one major driver of that decision should be your health. If it's poor, then you're generally better off claiming benefits on the early side, because while doing so will reduce your Social Security income on a monthly basis, you're likely to come out ahead on a lifetime basis. On the flipside, if your health is great, it generally pays to delay benefits as long as possible, as doing so will produce the highest lifetime payout.
Imagine you're entitled to $1,500 a month in Social Security at a full retirement age of 67. Filing at 62 will reduce each monthly payment you collect to $1,050, but you'll get 60 more payments so that you break even around age 78 1/2. But if you don't live until 78 1/2, you'll come out ahead by filing early. And if you delay benefits until age 70 in this scenario, you'll break even at age 82 1/2. Therefore, if you live longer than that, you'll benefit by having held off on filing.
The more you know about Social Security, the better those benefits will serve you in retirement. Keep these points in mind as you read up on the program and gear up to make a decision that will impact your golden years, for better or for worse.
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