Personal Finance

3 Things About Social Security That Not Enough People Know

Social Security
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There are millions of older Americans who depend on Social Security to get through retirement. And despite rumors that Social Security is headed toward bankruptcy, in all likelihood, the program will be around in some shape or form for every member of the workforce today.

But it’s important to understand the ins and outs of Social Security in the course of planning for a comfortable retirement. Here are a few aspects of the program far too many people may be in the dark about.

1. Benefits may only replace about 40% of your pre-retirement earnings (or less)

One of the worst mistakes you might make is assuming that Social Security will replace your entire pre-retirement paycheck each month, and saving little to nothing because of that. At best, Social Security will take the place of about 40% of what you earn. And this assumes that your income is fairly average.

If you’re a higher earner, don’t expect Social Security to cover 40% of your pre-retirement earnings. The program has a maximum benefit it pays retirees each month, and if you’re earning $400,000 a year, you won’t get anywhere close to 40% of that once you sign up.

Your best bet, in fact, is to get an estimate of the benefit you’re entitled to. Creating an account on the Social Security Administration’s website will give you access to your earnings statements, which will contain an estimate of your retirement benefit each year based on updates to your wage history. This number should get increasingly accurate as your retirement nears, but it’s a good starting point even when you’re fairly young.

2. Benefits can be claimed by people who have never worked

You might assume that if you don’t work, you won’t be able to collect Social Security in retirement. But you may be forgetting that the program pays spousal benefits.

You can collect spousal benefits on a current or former spouse’s record. If you’re divorced and looking to claim benefits on your ex’s record, you can do so if your marriage lasted at least 10 years and you’re not remarried. In that situation, you don’t even have to wait for your former spouse to sign up for Social Security themself.

If you’re married, you will need to wait for your spouse to claim Social Security before you can take spousal benefits. Either way, your spousal benefit is worth up to 50% of what your current or former spouse is entitled to at their full retirement age (FRA).

3. Benefits shouldn’t be delayed beyond the age of 70

If you want to avoid a reduction to your monthly Social Security benefit, you’ll need to sit tight until FRA to claim it. That age is 67 if you were born in 1960 or later.

There’s an upside to delaying your claim past that point, though. Each year you hold off beyond FRA gives your monthly benefit an 8% boost.

But you don’t want to wait on Social Security indefinitely. You won’t get credit for a delayed filing beyond the age of 70, so holding off beyond that point only means missing out on income you could be using.

Social Security’s numerous rules may seem complicated, but it’s best to familiarize yourself with as many as possible. This puts you in a great position to not only score a higher monthly benefit if that’s a goal of yours, but to plan savvily for retirement from a financial perspective.

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