Did you know that social security income plays a very large part of senior’s income? Roughly 60% of current retirees rely on social security as a major part of their monthly income, while 30% consider it to only play a minor part of their monthly income.
That means that roughly 90% of seniors in retirement rely on some level of social security income to sustain their current lifestyle.
Unfortunately most pre-retirees do not know the basics of social security and how to prepare to get the maximum benefits available to them.
Social Security income is calculated based on the 35 highest earning years. Of these 35 years, the earlier working years are weighted higher to account for inflation. Your income also needs to be reported to the social security department within three years of earnings or they could potentially count as $0 for that year.
If an individual takes their social security prior to their FRA (full retirement age) they will have a permanent reduction to their earning. An individual can start taking social security as early as age 62. Although taking it this early, will generate a dramatically lower monthly amount versus waiting, there can be times that it would be the smart thing to do.
An individual can delay taking social security as long as they want, but your full amount will not increase past age 70. For many, this could be the most valuable time to initiate payment, but would depend on life expectancy. In addition, for every year social security income is delayed past your FRA, the monthly income can increase roughly 7-8%.
A divorced individual has the option of claiming benefits from a prior spouse, as long as they were married for at least 10 years
Lastly, if you take social security prior to your FRA, the income could potentially be taxable based on your current income at the time of taking social security. BUT, the taxable portion is not fully lost. Although your earnings will not be refunded at FRA, your benefits will be adjusted to account for the earnings withheld at FRA.
The biggest take away to understand about social security and knowing when and when not to start taking the income is determining your needs as you head into retirement. Many thorough financial planners should have this as a part of your overall financial plan. No one answer fits all individuals.