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Your Social Security retirement benefit is the foundation of your retirement income.  That makes it important.  But how much do you really know about Social Security?

When You Claim Changes the Amount You Will Receive

The amount of your benefit is determined by your earnings record over a 35-year period.  But that creates the amount you may claim at your full retirement age.  Your benefit is decreased or increased if you choose to claim it at different ages.  Did you know that?

An individual may claim his or her own Social Security retirement benefit from ages 62-70.  Anyone born in 1960 or later has a “full retirement age” of 67.  Let’s call your benefit at your full retirement age a “base benefit” which can be decreased or increased depending on whether you claim it younger or older than your age 67.

The younger one claims a benefit the more years s/he will receive a monthly benefit but the lower the monthly benefit will be.  The later one claims a benefit the fewer monthly benefit payments one may receive but each monthly will be higher.  That may sound like it doesn’t make a difference when you claim your benefit but it does.

Why It Matters

Your benefit is 77% higher if you claim it at age 70 than at age 62.  Cost of living adjustments (COLAs) would be based on your benefit so the larger the benefit, the larger the COLA.  Which would you rather have later in life?  The age 62 or age 70 benefit amount?

A Million Dollar Decision?

Your Social Security benefit is one of the biggest items you’ll decide how to claim (or “purchase”).  After all, you’ve worked most of your life to qualify for this benefit so don’t you want to claim your benefit in a way that fits your needs?

Let’s say your benefit were $2,000 per month.  That’s $24,000 per year and your retirement may last 30 years so that’s 30 x $24,000 = $720,000 (without including cost of living adjustments to account for inflation).  With COLAs you might receive $1 million in Social Security benefits over a lifetime!

Who Cares?

The Social Security Administration does not care when you claim your benefit.  SSA calculates it will pay out the same amount regardless of when you claim it based on national averages.  Your situation is different than the “national average”.

Rule of thumb:  if you are healthy and can afford to wait, then wait.  The goal should be monthly financial security later in life.  

Your benefit is the foundation of your retirement income because it:

  • Is guaranteed by the US Government
  • Has tax advantages
  • Includes inflation protection
  • Is paid your entire life (you cannot outlive it).

Only 8% of Americans Wait Until Age 70 to Claim a Benefit

You may be surprised to know that 92% of Americans who claim a benefit don’t maximize their monthly benefit.

Why is that?

  • They cannot afford to wait
  • They are not in good health so they do not think it pays to wait
  • They already receive Social Security disability benefits and cannot maximize their monthly benefit
  • They claim at the same time they start Medicare (at age 65) out of convenience (the Social Security Administration is the enrollment arm of Medicare)
  • They were not an informed Social Security consumer when they claimed

Think of how much more you know about Social Security compared to 5 minutes ago!