What You Should Know About Social Security – Before You Retire

One of the few relative certainties about retirement has been Social Security, but as you’re probably aware, it — along with other retiree “entitlements” — are much less certain than they used to be. To better prepare for retirement, let’s take a look at what you should know about Social Security — before you retire.

What you should know about Social Security — before you retire

According to the latest annual report from the Social Security Board of Trustees, the “retirement program would only be able to pay out 75% of scheduled benefits starting in 2033, three years earlier than projected last year.” While you can’t control what the government will do to fix the problem, you can take the necessary steps to understand Social Security and what you need to do to maximize your benefits.

How much you collect is based on your age.

For people born between 1943 and 1954, full retirement age is 66. It gradually climbs toward 67 if your birthday falls between 1955 and 1959. For those born in 1960 or later, full retirement age is 67. You can collect Social Security as soon as you turn 62, but taking benefits before full retirement age results in a permanent reduction of as much as 25% of your benefit.

Benefits are based on your work history.

Your benefit is based on the 35 years in which you earned the most money. If you have fewer than 35 years of earnings, each year with no earnings will be factored in at zero. The benefit isn’t based on 35 consecutive years of work, but the highest-earning 35 years.

Your benefits are adjusted for inflation.

One of the most attractive features of Social Security benefits is that every year, the government adjusts the benefit for inflation. Known as a cost-of-living adjustment, or COLA, this inflation protection can help you keep up with rising living expenses during retirement. The COLA, which is automatic, is quite valuable; buying inflation protection on a private annuity can cost a pretty penny.

It helps to be married.

Marriage brings couples an advantage when it comes to Social Security. Namely, one spouse can take what’s called a spousal benefit, worth up to 50% of the other spouse’s benefit. Put simply, if your benefit is worth $2,000 but your spouse’s is only worth $500, your spouse can switch to a spousal benefit worth $1,000 — bringing in $500 more in income per month.

These are just a glimpse of what you should know about Social Security — before you retire. I’ll be covering more in future posts.

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