Social security plays an important role in the retirement finances of tens of millions of Americans. Approximately 90% of people aged 65 and over are already receiving benefits from the program, and for 50% of couples and 70% of single retirees, these checks provide at least half of their retirement income.
Americans are eligible to start claiming benefits as soon as they turn 62. But if your 62nd birthday is due in 2021, there is an important change you need to know before you apply for Social Security.
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How your age will affect the value of your Social Security benefit
First, a little background. The age you are when you apply for benefits has a direct impact on the size of your monthly checks. To receive the full amount of the benefit you are entitled to, you must claim what the government designates as your full retirement age (FRA).
For those who turned 62 last year, the FRA was 66 years and 8 months old. However, the FRA is increasing by 2 months this year – as it has been every year since 2017. So, if your 62nd birthday is in 2021, you will have an FRA of 66 years and 10 months.
This obviously means that in order to receive all the benefits, you will need to wait a few more months to start claiming. But more than 6 out of 10 seniors don’t wait that long, and if you apply for Social Security earlier, the increase in FRA means that your benefit reductions for doing so will be greater.
Consider the following: Someone with a 66-year-old FRA who chose to claim benefits at 62 would have their check size reduced by 28.3%. If you have an FRA of 66 years and 10 months, however, and claim at 62, your benefits will be reduced by 29.2%. This may not seem like a big difference, but it can reach a few hundred dollars a year.
Strategies that can increase your benefits
You have no control over your FRA because it is based on the year you were born. However, you can take steps to increase the amount of Social Security benefits you receive each month.
One option is to wait a little longer to apply for Social Security. Deferring the claim until you reach the FRA will ensure that you receive the full amount of the benefit, but waiting beyond that age will further increase the size of your checks. If you have an FRA of 66 years and 10 months and wait until you are 70 to claim, you will receive 125.3% of the total amount of your benefit. This can result in hundreds of dollars more per month than you would receive if you claimed before or in the FRA.
In addition, if you want to receive as much Social Security as possible, make sure you have worked for at least 35 years before you start receiving benefits. The Social Security Administration uses the 35 years of highest income of its career when making the calculation on which its benefits are based. If you have earned salaries in less years than that, the government will factor some zeros in that math, which will reduce the size of your monthly checks.
Tens of millions of retirees depend on Social Security to help them survive. If you expect your benefits to be a substantial source of income in retirement, it is worth doing your homework before you start claiming them. Making sure you know your FRA and how it will affect your benefits is just one way to help ensure that you are entering seniors as well as possible.