Chances are, Social Security will eventually play an important role in your retirement. You may need this money to cover your essential bills, such as housing and health care. Or maybe you’ll start your senior year with enough money in a savings plan to meet your basic expenses, but you’ll need Social Security to pay for things like travel and entertainment.
Either way, it’s important to get the most out of your benefits. But if you’re misinformed about Social Security, you could end up locking in a lower monthly benefit for life.
That is the risk most Americans are taking today. Only 17% of people are able to correctly identify their full retirement age (FRA) for social security purposes, according to a recent Fidelity survey. This means that most do not know when they are entitled to receive their full benefits – and so they risk signing up at the wrong time.
What the retirement age means to you
Your monthly social security benefits are calculated on the basis of your average monthly salary, adjusted for inflation, over your best-paid 35 years in the workforce. You are then entitled to claim this monthly benefit once you reach FRA.
FRA depends on the year of your birth, according to the following table:
year of birth
Full retirement age
66 and 2 months
66 and 4 months
66 and 6 months
66 and 8 months
66 and 10 months
1960 or later
You are allowed to register for Social Security before reaching FRA (eligibility starts at 62), but for each month you file early, your monthly benefit will be permanently reduced. Apply for Social Security at 62 with an FRA of 67, for example, and your monthly benefit will take a 30% hit.
This is why it is so important to know your FRA before signing up for benefits. In addition, knowing your FRA can help you better plan for your retirement in general.
In the survey mentioned above, 44% of Gen Xers underestimated their FRA by 67. But that could negate your retirement plans, because if you think you are entitled to all of your monthly benefits from social security at age 65, you will find that this is not the case. case, you may need to scramble to readjust.
Incidentally, you are also allowed to delay your social security claim beyond your FRA. For each year you do, your benefits will increase by 8%, until you reach age 70. So, if your FRA is 67, for example, you have the option of increasing these benefits up to 24%.
Whether you plan to apply for Social Security in your early 60s, mid 60s, late 60s, or 70s, make sure you know your FRA and use it to inform your decision.
And while you’re at it, spend some time reading how Social Security works to put yourself in a better position to make the right call. The program is full of rules and nuances that can help or hurt you, depending on how you look at it, so improving your Social Security knowledge is an important step in planning for retirement.
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