Social Security can be a complicated topic, but if you expect to depend on your benefits at all in retirement, it’s important to at least understand the basics.
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The more you know about how the Social Security program works, the easier it will be to maximize your monthly checks. And by understanding these three concepts, in particular, you’ll be able to make the most of your benefits in retirement.
1. Full retirement age
Your full retirement age (FRA) is perhaps the most important Social Security concept to understand, because it has a direct effect on how much you receive each month. If you were born in 1960 or later, you have a FRA of 67 years old. For those born before 1960, your FRA is either 66 or 66 and a certain number of months, depending on the exact year you were born.
Your FRA is the age at which you’ll receive 100% of the benefit amount you’re theoretically entitled to. If you claim before that age (as early as age 62), your monthly checks will be reduced by up to 30%. But if you wait until after your FRA to file for benefits (up to age 70), you’ll receive your full benefit amount plus up to 32% extra each month.
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In general, once you start claiming, your benefit amount won’t change (except for annual cost-of-living adjustments). That means it’s especially important to choose wisely when deciding when to claim benefits, because you’ll be stuck with this benefit amount for the rest of your life.
2. Factors that affect your benefit amount
Even before you begin claiming benefits, there are steps you can take to maximize the amount you’re eligible to receive. Two of the most important factors that can affect your benefit amount are how many years you’ve worked and your earnings history.
You generally become eligible to collect Social Security once you’ve worked and paid taxes for at least 10 years, but to receive as much as possible, you’ll need to have worked for at least 35 years. The Social Security Administration (SSA) calculates your benefit amount by taking an average of your income over the 35 highest-earning years of your career, then adjusting it for inflation. The result is your basic benefit amount, or the amount you’ll receive by claiming at your FRA.
This means if you work fewer than 35 years, your benefit amount will be lower. And because the SSA only considers your highest-earning years, boosting your income can also help increase your benefit amount.
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3. Types of benefits you’re eligible to receive
Retirement benefits may be the most well-known type of Social Security benefit, but they’re not the only type you may be eligible to collect. For example, there are also spousal benefits, divorce benefits, and survivors benefits, and knowing what types you’re entitled to can give your benefits a boost.
If your spouse is eligible to collect Social Security, you may be entitled to spousal benefits as well. The maximum amount you can receive is 50% of the amount your spouse can collect at his or her FRA, so you must be collecting less than that based on your own work record to be eligible for spousal benefits.
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To be eligible for divorce benefits, your marriage must have lasted for at least 10 years, and you cannot currently be married. As with spousal benefits, the most you can receive is 50% of the amount your ex-spouse is entitled to at his or her FRA.
Finally, survivors benefits are generally available to widow(er)s, and you may be entitled to collect the full benefit amount of the deceased person. Although typically only spouses are eligible for survivors benefits, in some cases, children, parents, and other relatives who were dependent on the deceased for income may be entitled to these benefits as well.
Maximizing your Social Security income
Social Security benefits are a significant source of income for millions of retirees, so it pays to understand how your benefits are calculated and the types of benefits you may be entitled to collect. When you have a solid grasp on these Social Security basics, you can ensure you’re doing everything possible to maximize your monthly checks.
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