The Kenosha News’ recent article entitled “This Social Security Misconception Could Cost You 450 A Month” cautions that there’s one major misconception that many near-retirees share, and if you fall for it, you could potentially lose hundreds of dollars per month.
You should know your full retirement age (FRA) for Social Security. If you were born in 1960 or later, your FRA is 67. For those people born before 1960, your FRA is either 66 (or 66 and a certain number of months), depending on the exact year you were born. If you wait to claim at your FRA, you’ll receive the full benefit amount you’re entitled to collect. You can claim earlier, but you’ll get smaller monthly checks.
A common misconception is that if you claim early, your benefits will only be reduced until you reach your FRA, then you will get your full benefit amount. However, when you claim before your FRA, you’ll receive lower monthly payments for the rest of your life. It won’t increase when you reach your FRA.
The average retiree collects $1,514 per month in benefits, according to the Social Security Administration. If your FRA is 67 years old, you’d get $1,514 per month by claiming at that age. However, if you claim early at age 62, your benefits would be reduced by 30%, leaving you with only $1,060 per month. Thus, you may be looking forward to a $450 per month raise in benefits, once you turn 67. However, the truth is you’ll be stuck with those smaller checks for life. That could have a significant effect on your retirement, especially if you are going to be relying on Social Security for a large part of your income.
If you delay claiming benefits until after your FRA, you’ll get your full benefit amount plus a bonus of up to 32% every month. Because your benefit amount is generally locked in for life, once you start claiming, when you delay benefits, you’ll get bigger checks every month for the rest of your retirement.
You can also up your benefits by working longer or increasing your income. The Social Security Administration calculates your basic benefit amount (or the amount you’ll receive by claiming at your FRA) by taking an average of your income over the 35 highest-earning years of your career and adjusting it for inflation. If you work more than 35 years or boost your income, you can increase your earnings average as well as your benefit amount.
Reference: Kenosha News (Oct. 17, 2020) “This Social Security Misconception Could Cost You 450 A Month”
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