How The Length Of Your Career Affects Your Benefits
One of the most important factors when it comes to your benefit amount is the number of years you’ve worked. Most people become eligible for Social Security retirement benefits once they’ve earned income for 10 years, but you’ll need to work for at least 35 years to receive the maximum benefit amount.
When calculating the amount you’ll receive, the Social Security Administration takes an average of your wages throughout the 35 highest-earning years of your career. That number is then adjusted for inflation, and the result is the amount you’ll collect if you claim at your full retirement age .
If you work more than 35 years, only the years with the highest earnings will be counted — which could increase your average and result in a higher benefit amount. If you work fewer than 35 years, however, you’ll have zeros added to the equation, which will bring down your average.
Start Small But Early
One of the most important steps in saving for retirement is to start ASAP. Even if there is short-term pain, such as student loans, credit card debt or a mortgage, you need to think long-term, said Yanelys Benham, wealth management advisor with TIAA. If you dont, your money wont have as much time to grow.
Benham shared this example: Lets say you have two women who both turned 65 last year. The first one started saving just $100 a month thats only $25 a week when she was 25. That was back in 1981. The other woman decided to wait only 10 more years, until she was 35. That was in 1991. But at that point, she started saving twice as much each year. Instead of $100 a month, she started saving $200.
If they both put their money into the S& P 500, then at the end of 2021, the woman who started investing when she was 25 would now have almost $450,000. The woman who waited an extra 10 years would now have less than $330,000, even though she invested twice as much money once she started saving.
Take Our Poll: How Do You Typically Split the Restaurant Bill?
Why Did I Get An Extra Social Security Payment This Month 2022
Social Security recipients will see larger checks starting January 2022 as a result of a 5.9% increase from the new cost of living adjustment. … This means that whatever you have been receiving throughout the year will continue to be the amount you receive in your benefit check for the remainder of the year.
Don’t Miss: Out Of The Box Employee Benefits
Bridge To Medicare At Age 65
Remember that while you are eligible for reduced Social Security benefits at 62, you won’t be eligible for Medicare until age 65, so you will probably have to pay for private health insurance in the meantime. That can eat up a large chunk of your Social Security payments.
Read Viewpoints on Fidelity.com: Your bridge to Medicare
Spouses And Social Security
You can claim Social Security benefits based on your spouse’s work record. If claiming spousal benefits provides more, claiming before your FRA on a spouse’s record means you’ll lose even more than claiming on your own recordthe benefit reduction for a spouse is 35% while the reduction for claiming your own benefit is 30%. For instance, if you’re the spouse of Colleen in the above example and you are the same age, you’d be eligible for only $650 a month at age 6235% less than the $1000 a month you would get at your FRA of 67.
Not married? Read Viewpoints on Fidelity.com: Social Security tips for singles
Your decision to take benefits early could outlive you. If you were to die before your spouse, they would be eligible to receive your monthly amount as a survivor benefitif it’s higher than their own amount. But if you take your benefits early, say at age 62 versus waiting until age 70, your spouse’s survivor Social Security benefit could be 30% less for the remainder of their lifetime.
Recommended Reading: What Is The Benefit Of Medicare Advantage
Think Of Your Nest Egg As An Ongoing Opportunity
Redfern said that many people make the mistake of looking at their retirement fund as if it were one big paycheck. However, that can put you into a scarcity mindset, which she said contributes to feelings of fear and anxiety in retirement.
Whats more helpful is to lean into an opportunity mindset, Redfern said. Look at your retirement nest egg as an engine, a machine that you are building. You should consider how your investments can generate income on an ongoing basis. If you arent sure, working with a financial planner can help you determine the best places to put your retirement savings.
Workers Who Die Before Age 62
The minimum age to start claiming Social Security retirement benefits is 62. If someone dies prematurely, then dependent children and spouses may be entitled to survivor benefits. At age 60, for example, widows and widowers can begin receiving Social Security benefits based on their deceased spouses earnings record . Terminally ill patients can apply for Social Security Disability Insurance , which means they will still receive some benefit from their contributions to the system.
What if you are terminally ill and reach the minimum retirement age? If you are single, claiming right away may be the most sensible strategy. However, if you have a spouse, postponing may provide your spouse with greater benefits. The spousal benefit can be as much as 50% of the worker’s benefit, depending on the spouse’s age at retirement and if the spouse is eligible for retirement benefits based on their own earnings record. The Social Security Administration has an online calculator that helps determine benefits for spouses.
If you do not qualify for Social Security payments, you need to ensure that you have sufficient income to support your lifestyle in retirement.
Recommended Reading: Medicare Home Health Care Benefits
What If Your Earnings Are Falling Short
If you’re earning enough to reach the maximum benefit amount, that’s fantastic. But the average worker will struggle to reach the income limits, and not everyone can afford to work 35 years before claiming.
The good news is that if you’re willing and able to delay benefits past age 62, you can earn closer to the maximum benefit amount.
Say, for example, you have an FRA of 67 years old, and by claiming at that age, you could receive $1,600 per month. If you were to claim early at 62, your benefits would be reduced by 30%, leaving you with $1,120 per month. But if you delay benefits until age 70, you’d receive your full benefit amount plus an extra 24%, or $1,984 per month.
Not everyone will be able to wait until age 70 to file for benefits. But if you’re unable to reach the maximum benefit amount, delaying Social Security is one of the best and easiest ways to boost your benefits.
The Motley Fool has a disclosure policy.
Why You Need To Supplement Your Social Security Benefits
First off, Social Security was intended to be a supplement to people’s retirement savings. The National Institute on Retirement Security describes retirement income as a ‘three-legged stool’, consisting of Social Security, a pension plan, and individual retirement savings through accounts like a 401 or an individual retirement account.
However, since the 1980s, fewer and fewer companies have been offering pension plans to their employees. The onus for saving for retirement has fallen on the employee.
And most people aren’t doing great when it comes to saving for the future: A 2020 NIRS study found that 40% of Americans rely on Social Security as their sole source of retirement income. The average annual Social Security benefit for a worker is nearly $20,000, hardly enough money for most retirees to subsist on.
When it comes to saving for retirement, it’s important to start as early as you can, whether that’s through an employer-sponsored 401 or a traditional or Roth IRA. By saving for retirement early in life, you’ll reap the benefits of compound interest, which is interest earned on interest.
For example, if you started saving for retirement when you’re 25 and had investments yielding a more conservative 6% return, you would need to invest $530 per month for 40 years to reach $1 million. If you waited until you were 40 and had investments yielding a 6% return, you would need to invest $1,500 per month for 25 years to end up with $1 million.
Also Check: Free Medicare Benefits Review Commercial
Understanding Minimum Social Benefit
You are probably wondering about minimum social security payment: what it is and how it works. Typically, the benefits go to low wage earners. In 2018 for someone who had worked for 3 decades, the minimum social security payment stood at $848.80 and $10,185.60 monthly and annually respectively. Notably, the minimum benefit payments are also adjusted as per prevailing inflation rates.
Average Social Security Check By Type
While most people think of Social Security as a program just for retirees, it serves many other groups, including the disabled, spouses and minor children of retirees as well as the spouses and minor children of deceased workers. The amount that each group receives differs substantially.
In fact, the average retired worker receives $1,676.53 each month about 8 percent more than Social Security recipients as a whole. Heres how the figures break down by recipient, as of October 2022.
|Type of beneficiary
Read Also: How Do Social Security Benefits Work
Tips For Enjoying A Financially Peaceful Retirement
For many employees, retirement represents a future of relaxation, travel and time with family. Its a reward after decades of hard work.
Unfortunately, if you havent built up a solid nest egg, retirement could be much more stressful than you hoped. A peaceful retirement requires enough money in the bank so that you have the freedom to spend on the things that are most important to you.
However, that kind of financial freedom comes in many forms, according to Laura Redfern, CFP, CeFT and founder of Peaceful Prosperity. For some people, financial freedom can be achieved on a nest egg of $100,000. For others, $1 million is a minimum, she said. The point is that theres no one magic number you have to achieve. Its all about your expectations and desires for your retirement lifestyle.
So if one of your goals is to have a financially peaceful retirement, here are some tips to achieve it.
Before You Make Your Decision
There are advantages and disadvantages to taking your benefit before your full retirement age. The advantage is that you collect benefits for a longer period of time. The disadvantage is your benefit will be reduced. Each person’s situation is different. It is important to remember:
- If you delay your benefits until after full retirement age, you will be eligible for delayed retirement credits that would increase your monthly benefit.
- That there are other things to consider when making the decision about when to begin receiving your retirement benefits.
Also Check: Taxability Of Social Security Benefits
What If I Change My Mind
If you receive Social Security benefits at a reduced rate but then change your mind, you have the option of withdrawing your application within the first 12 months of receiving benefits and paying back to the government what you’ve already received . Then, you could restart benefits at a later date to take advantage of a higher payout. Be aware that you’re limited to one withdrawal per lifetime.
For example, let’s say you elected to receive early benefits at age 62 but then decided to go back to work at age 63. You could withdraw your Social Security application, pay back the years’ worth of benefits you received, go back to work, and then wait until your full retirement age to restart your benefit checks at a higher level.
Once you reach full retirement age, another option is to voluntarily stop benefits at any point before age 70 to receive delayed retirement credits . Benefits will automatically restart at age 70 at a higher amountâunless you choose to start taking benefits before then. Note that when you withdraw your application or stop your benefits after full retirement age, you must specify if your Medicare coverageâif you have itâshould be included in the withdrawal.
What Is The Average Social Security Benefit At Age 62
According to the Social Security Administration , if you were born between 1943 and 1954, your full retirement age is 66. By claiming at the age of 62, a hypothetical $1000 retirement benefit would be reduced by 25% and you would only receive $750 per month. A $500 monthly spousal benefit would be reduced to $350.
The greater the gap between age 62 and FRA, the higher the percentage of reduction in retirement benefits. For those born in 1960 or later, retirement benefits are reduced by 30% and spousal benefits are reduced by 35%. This means a $1000 retirement benefit would be reduced to $700 per month.
According to the SSAs 2021 Annual Statistical Supplement, the monthly benefit amount for retired workers claiming benefits at age 62 earning the average wage was $1,480 per month for the worker alone. The benefit amount for workers with spouses claiming benefits was $2,170 at age 62.
Take Our Poll: Are You Struggling To Keep Up With Your Utility Bills?
Although claiming before FRA allows you to collect retirement benefits for a longer period of time, your benefit amount will be significantly reduced. The SSA says that if you delay your benefits until after FRA, you will be eligible for delayed retirement credits that would increase your monthly benefit.
More From GOBankingRates
Also Check: Lawyers Specializing In Social Security Benefits
Certain Government And Railroad Employees
There are some jobs that dont pay into Social Security. Federal government employees hired before 1984 are included in the Civil Service Retirement System , which provides retirement, disability, and survivor benefits. These workers did not have Social Security taxes deducted from their paychecks and thus are not eligible to receive Social Security benefits.
They may still qualify if they have earned benefits through another job or a spouse. However, in these cases, CSRS pension payments may reduce Social Security payouts. Government workers who are covered by the Federal Employees Retirement System , which replaced CSRS, are eligible for Social Security benefits.
Most state and local employees have Social Security protection under a federal Section 218 agreement. However, some of these workersincluding those who work for a public school system, college, or universitywill not receive Social Security benefits if they do not pay Social Security taxes. They generally receive pension benefits from their employers.
Although You’ll Receive Reduced Checks By Claiming Early You Can Still Receive Thousands Of Dollars Per Month
The age at which you file for Social Security benefits will have a major impact on the amount you receive each month. While you can receive larger monthly payments by delaying benefits, many workers choose to file as early as possible at age 62. That can be a smart strategy in many cases, and there are several advantages to claiming early.
You can still earn a substantial amount in benefits by claiming early, too. In 2022, the maximum you can collect by filing at age 62 is $2,364 per month — which is significantly higher than the $1,557 per month average benefit amount. Here’s what it takes to achieve the maximum monthly payments.
Image source: Getty Images.
Also Check: How Apply For Social Security Benefits
How Will My Social Security Benefits Be Calculated
YourSocial Security benefits are based on your 35 highest-earning years of employment. There are a few adjustments made to account for inflation. If you have worked less than the requisite 35 years, you will likely see lower Social Security benefits in retirement.
The Social Security Administration calculated your Average Indexed Monthly Earnings or AIME to determine your final Social Benefits. The AIME is computed by dividing the sum of all your indexed wages by 420. Eventually, your actual Social Security benefit amount is calculated based on various factors, such as the age at which you start collecting benefits. Remember, the SSA will lower your benefits if you start taking them before full retirement age.
How Can I Get My Social Security Estimated Benefits?
Even if you are a long way from retiring, getting an estimate of your future Social Security benefits can be helpful. For those closer to full retirement age, you will likely want to check your Social Security benefits annually. You can register to view your official Social Security work history and estimated future Social Security benefits on the SSA site. Setting up an account is free.
How Social Security Benefits Are Normally Calculated
To be eligible for a Social Security retirement benefit, you must earn 40 credits. These credits equate to quarters of coverage, or years in which you earned income subject to Social Security taxes.
In 2023, you receive one credit for each $1,640 of covered earnings, up to a maximum of four credits per year. The amount of earnings needed to earn a credit increases annually as average wage levels increase.
When the Social Security Administration calculates the benefit for those who have earned the sufficient number of credits, they start by inflating your historical earnings.
The formula indexes each year of earnings to reflect historical wage growth using the Average Wage Index. Then, the formula divides the sum of your highest 35 years of indexed earnings by 420 .
If an individual has fewer than 35 years of covered earnings, years of no earnings get entered into the formula as zeros.
This calculation provides the inflation-adjusted average indexed earnings expressed as a monthly amount. Said another way, thats your average indexed monthly earnings. The Social Security Administration will frequently refer to this figure by its acronym AIME.
Next, the calculation applies your AIME figure to the Social Security benefits formula that is in place the year you attain age 62.
Two numbers called bend points make up the benefits formula, which creates three separate bands your average income falls into to determine your benefit amount:
You May Like: Shell Oil Company Retirement Benefits