While we discuss several matters in our daily life, Social Security often takes a back seat, but overlooking its significance can lead to complications down the road. Remember that Social Security extends beyond the scope of retirement alone. It includes disability benefits (known as SSDI) and provides support to survivors, including spouses and children. Recognizing this broader role sheds light on its overall importance in financial planning.
After that, you better take into consideration that while Social Security lays a foundation, relying solely on it is unlikely to suffice for all your retirement needs. Most retirees have a second income that help them make ends meet. But, there’s one particular thing to consider, relevant for everyone, that’s important even if your retirement will take place many years in the future.
The Error That Could Shrink Your Retirement Check
In general, the Social Security Administration (SSA) takes the highest-earning 35 years of your work history to calculate your retirement benefits. But not only that is a factor to determine, but the 35-year number is decisive when it comes to knowing how many digits your monthly check will bring. Why? Because working less than that amount of years causes a reduction in the benefit, and you will have problems maintaining your quality of life in your golden years.
Imagine this example scenario: You have only 30 years of Social Security taxes under your belt, and you reach your minimum age to finally become a happy retiree. The SSA will calculate 35 years, adding to your 30 years of payments another five years of wages $0. The average will tend to go down and your monthly check will be much smaller. If you reach your minimum retirement age, consider this fact and take into account the impact on your long-term plan.
When to Claim Social Security Defines It All
Timing is crucial for future retirees when it comes to claiming Social Security benefits. While you can start receiving benefits as early as age 62, you’ll have a designated full retirement age (FRA) after that. For anyone born in 1960 or later, the FRA is 67. That’s the age at which most future retirees can expect to receive their standard Social Security check. However, claiming early comes with a price: reduced benefits due to early filing penalties. These penalties reduce your payment by 6.7% annually for the first three years and an additional 5% for each year before your FRA.
If you don’t want to reduce your Social Security income, you’ll need to wait until age 67 to start receiving retirement checks. Even then, you may want to consider waiting until age 70 to earn delayed retirement credits that will increase your benefit amount.
If you don’t think you’ll be able to work until at least age 67, it’s a good idea to try to have enough savings to support yourself for a while. This way, you can postpone claiming Social Security benefits and avoid the financial hit of an early claim.