For many Americans, Social Security is, or will be, a significant portion of their retirement income. However, a recent Motley Fool article cautions against thinking it’s as simple as claiming your benefits and then receiving a monthly check. Five of the Motley Fool’s retirement contributors offered their thoughts on what would-be Social Security recipients should keep in mind.
First off, be aware that you need a minimum of 40 credits to qualify for retired-worker benefits under Social Security. Secondly, your Social Security benefits are based on the average of 35 years of annual wages. If you haven’t worked for 35 years, $0 is averaged in for each year under 35 years you didn’t work. The more zeros in your average, the lower your monthly benefit. Therefore, it is beneficial to work longer to remove any zeros to boost your benefit.
Be aware that Social Security strategies used to boost your benefits can come and go. For example, changes in the Social Security laws will eliminate the popular file-and-suspend method. Luckily, those wishing to take advantage of this strategy received a six-month reprieve before the law changes. However, there is no guarantee such consideration will be offered for future law changes. Therefore, consider locking in a benefit while it is still available instead of risking its elimination and missing out.
Don’t overestimate the role Social Security will play in your retirement. According to the Social Security Administration, the average retirement man received an average monthly benefit of $1,488 in 2014, and the average retired women received $1,167 a month. This translates, on average, to roughly $14,000 to $18,000 a year.
For married couples, make sure you have a joint strategy. This may include one spouse–ideally the bigger earner–delaying collecting their benefits to increase the size of their eventual payments.
One common Social Security mistake is filing for benefits too early. The article cites a survey from the National Retirement Institute that showed that 83% of recent retirees started collecting benefits before reaching full retirement age. As a rule of thumb, unless you absolutely need the money, it is best to delay claiming your Social Security benefits for as long as possible.
AAII also offers a collection of resources for those nearing retirement and are considering when to start claiming their Social Security benefits. These include:
- Social Security Basics
- Social Security: Delay Benefits at the Expense of Personal Savings
- Social Security: Delay or Take the Money and Run–Act II
If you are not an AAII member and want to become an effective manager of your assets, simply take a risk-free 30-day Trial AAII Membership and AAII’s informative content and all of our other membership benefits will be available to you.