Whether Social Security is your main source of retirement income or merely a supplement, it is important to familiarize yourself with your benefits. These are six things you should know about Social Security.
1. Your Full Retirement Age
The amount of monthly benefit you receive from Social Security will vary depending on whether you start receiving your benefits before or after your full retirement age. If you were born between 1943 and 1954, your full retirement age is 66. For those born between 1955 and 1959, it is between 66 and 67. For everyone born in 1960 or later it is 67.
2. How Your Benefits Are Calculated
The amount of money you receive is based on the 35 calendar years in which your income was the highest. People who have less than 35 years of earnings will have each year with no earnings factored in as a zero. You can increase your benefits by replacing any no or low-income years with higher-income years, even after you retire. Regardless of how much income you have earned, there is a cap on how much you can receive. In 2021 that cap is $3113 for people at full retirement age and $3,895 for those who delay claiming their benefits until age 70.
3. How Benefits Are Earned
To qualify for Social Security benefits individuals must accumulate at least 40 credits. A maximum of four credits can be earned per year, making 10 the minimum number of work years required to qualify. In 2021 a person must earn $1,470 to get one credit and $5,880 to get four.
4. Waiting Longer To Claim Your Benefits Increases Your Payout
You can claim your benefits at the age of 62, but doing so will cost you a reduction of 25 to 30%, depending on your full retirement age. At full retirement age, you are entitled to 100% of your benefits; however, if you choose to wait, you will receive an 8% increase for each year up to the age of 70. Delaying your claim also increases the amount of the survivor benefit, should you die before your spouse.
5. There Is an Annual Cost-of-Living Adjustment
People receiving Social Security benefits receive an annual cost-of-living adjustment to account for inflation. This adjustment is calculated based on the federal consumer price index.
6. There Is a Benefit for Spouses
A spouse who is at full retirement age can claim up to 50% of the benefit the higher-earning spouse is entitled to. For example, if your benefit is $1000 and your spouse receives $3000, you can claim a benefit of $1500. The higher-earning spouse must apply for Social Security benefits first and there is still a penalty for claiming the benefit before full retirement age. For more details on how the spousal benefit may affect your earnings, consider enrolling in a Social Security seminar.
Because your actions can have a dramatic impact on the benefits you are entitled to receive, it is important to understand how your benefits work. A retirement professional can assist you with this process.
Author | Emily Forbes
An Entrepreneur, Mother & A passionate tech writer in the technology industry!