AMERICANS considering retiring should follow three key steps to ensure they maximize their Social Security benefits for when they stop working.
To maintain the same quality of line after retirement, seniors must replace at least 80 percent of their pre-retirement income.
Social Security (SS) benefits alone won’t help you do that, for the scheme is only designed to replace around 40 percent of your former income.
While you can’t just rely on SS benefits, there are a few steps you can take to ensure you’re receiving as much money as possible.
The vast majority of Americans – around 90 percent – don’t know how to maximize their retirement income.
To be within the 10 percent who do, follow the three steps below:
STEP 1: CLAIMING BENEFITS ON SPOUSE’S WORK
If your spouse was the highest earner in your household, you may be eligible to receive higher SS payments if you claim either spousal or survivor’s benefits, instead of claiming benefits based on your income.
Spousal benefits could be as high as half your spouse’s full benefit.
Survivor benefits, meanwhile, could equal up to 100 percent of the deceased worker’s benefit.
You can access these benefits even if you’re divorced. However, your marriage must’ve lasted for at least 10 years.
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STEP 2: WORK FOR MORE THAN 35 YEARS
SS benefits are calculated on your 35-year work history, though you can still claim the payments if your career spanned a shorter period of time.
If you don’t work for 35 years, your benefit will be reduced.
That’s because your benefits equal a percentage of your career-average wages during the 35 years you earned the most.
Staying in work for less than 35 years will mean that some years of $0 wages will be considered in your average.
Additionally, calling it quits after exactly 35 years may prohibit you from boosting your benefits.
If you’ve increased your salary over the years, your current income could be higher than during your earlier working years.
Therefore, each extra year you work at that higher wage will become one of the 35 years from which you determine your average salary, and a lower-earning year at the start of your career will be pushed out.
STEP 3: DELAYING YOUR CLAIM
The third point to consider is that delaying your benefits claim could also increase your Social Security payments.
The earliest age you can start receiving SS checks is 62. Delaying your claim until either 66 or 67 – what’s considered full retirement age (FRA) – enables you to avoid early fining penalties.
These penalties result in a 6.7 percent reduction in benefits for each of the first three years benefits start ahead of your FRA.
There’s an additional 5 percent reduction for each prior year.
As an example, a retiree born in or after 1960 who has a full retirement age of 67 would see their benefits slashed by a whopping 30 percent if they don’t delay until FRA.
For some, waiting beyond FRA may make financial sense.
Waiting until you’re 70, for instance, will entitle you to delayed retirement credits which could raise your payments by as much as eight percent annually, for each year you wait.
Of course, the longer you wait the fewer checks over your lifetime — so make sure your higher monthly payments make up for income lost by not claiming early.
YOU COULD BE ELIGIBLE FOR MAX PAYMENT OF $3,895
For the year 2021, the maximum monthly SS benefit you can receive is $3,895, which would provide an annual retirement income of $46,740.
However, most do not qualify for the payment.
To do so, you must earn the maximum in taxable Social Security wages for at least 35 years, and wait until you are 70 to claim the funds.
The maximum taxable Social Security wage changes from year to year.
This year, it’s $142,800. So in order to earn the maximum benefit, you’d need to earn the inflation-adjusted equivalent of $142,800 every year for at least 35 years.
According to the Social Security Administration, only around 6 percent of people per year earn up to the wage base limit.
While you may not be eligible for the full amount, you can get an estimate on how much you’ll receive by signing into your online account at mySocialSecurity.gov.
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