The Game of Life – Social Security

Retirement is generally one of the major goals in one’s financial journey through life. Social Security is part of almost every person’s retirement plan. It replaces a percentage of your pre-retirement income based on your highest 35 years of earnings and varies depending on when you choose to start benefits. On average, retirees receive 40% of their pre-retirement income from Social Security.

Choosing when to start receiving retirement benefits is a personal decision. There is no universal “right” time to begin taking benefits for every person. The longer you wait to begin benefits, the higher your monthly benefit will be.

Full retirement age is the age when you can start receiving your full retirement benefit amount. The full retirement age is 66 if you were born from 1943 to 1954. It increases gradually if you were born from 1955 to 1960, until it reaches 67. For anyone born 1960 or later, full retirement benefits are payable at age 67.

A worker can choose to retire as early as age 62, but doing so may result in a reduction of as much as 30 percent. A benefit is reduced 5/9 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month.

When you delay benefits beyond your full retirement age, the amount of your monthly retirement benefit will continue to increase up until age 70. There is no incentive to delay claiming after age 70. The amount that your monthly benefit will increase per year depends on the year you were born. See the chart below.

You can choose to keep working beyond your full retirement age. If you do, you can increase your future Social Security benefits. Each extra year you work adds another year of earnings to your Social Security record. Higher lifetime earnings can mean higher benefits when you choose to receive benefits.

Once you make a decision on what’s best for you, it’s recommended that you apply four months before you want your Social Security retirement benefits to start. Before applying, be ready to provide your Social Security number and information about:

– Dates of current and previous marriages, and where you were married

– U.S. military service dates and branches

– Employer names and dates for the past two years

– Self-employment income and type of business

– Bank information to set up your direct deposit

– Information on family members who may be eligible to receive benefits on your record

Choosing when to start your Social Security benefits can be a complicated decision. There are many factors to consider. Your financial advisor can help you navigate this decision and how it fits into your overall financial plan.

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