In a recent study, 82% of pre-retirees didn’t know that the age they begin drawing their Social Security benefits affected the amount in their monthly payments. The Consumer Financial Protection Bureau (CFPB) wants to make sure you aren’t a part of that statistic.
Consider these five tips from the CFPB to help you plan ahead and make the best decision for yourself and your family:
- Know your “full retirement age”
Did you know? One recent survey found that seven in ten consumers believe that 65 is their full retirement age. In fact, the full retirement age actually varies depending on the year you were born.
Full retirement age is the age at which you can begin collecting social security while still working, without facing a reduction in benefits. For most people, that’s usually around 66 or 67. Claiming before your full retirement age leads to a permanent decrease in monthly benefits, while claiming after leads to a permanent increase.
- Don’t claim early if you don’t have to
Did you know? You could see as much as a 30 percent reduction in monthly benefits by claiming before your full retirement age. But, you can get as much as a 32 percent permanent increase by claiming after your full retirement age – up to age 70.
Allowing your benefits to grow for one year makes a difference in your benefits. You’ll get an additional five to eight percent in monthly benefits for every year you wait to claim after age 62, maxing out at age 70. A higher monthly benefit could be important as you age, when Social Security may come to play a more central role in your retirement income.
- Know your retirement budget
Did you know? Retirement years could be more expensive than you expect due to changing health and housing expenses.
Start with a simple budget that accounts for your income and expenses. Consider both your actual income and expenses before retirement and your expected income and expenses after you retire. This can help you understand how a reduced or increased benefit will affect your ability to meet your needs in retirement. In addition, this kind of budgeting can help you decide if you should reduce your expenses and pay off any debts before retiring.
- Keep working if you can
Did you know? Forty-five percent of people believe that their benefits are based on how long they work as well as their pay during only the last five years of employment. In fact, they are based on their highest 35 years of earnings.
Staying in the workforce – full or part time – for even one or two additional years can earn you an even bigger increase in your Social Security benefit by replacing years with low or no earnings from your earnings record. Working longer also gives you more time to save for retirement.
- Consider your spouse’s long-term needs
Did you know? On a more somber note, a married couple reaching age 65 can expect that one spouse will outlive the other for about 10 years or more on average — something forward-thinking planners should keep in mind.
Your decision of when to claim your Social Security benefits could affect the benefits your spouse will receive later in life. Because surviving spouses receive the higher of the two spouses’ benefits, it often makes sense for higher earning spouses to wait and claim at or after their full retirement age. They will then get their full or highest possible benefit. This can minimize the reduction in income a surviving spouse may experience. Talk to your spouse about your claiming options so you can make this important decision together.
Do you need more information to help you decide when to claim Social Security? Before you claim, check out this “Planning for Retirement” tool.
To get more facts about Social Security, check out this Consumer Financial Protection Bureau factsheet.
(Source: Consumer Financial Protection Bureau)