Since you began working, Social Security has recorded your reported earnings under your name and Social Security number. Social Security updates your record each time your employer (or you, if you’re self-employed) report your earnings. Your earnings determine your benefit amount.
It’s not necessary to become an expert on Social Security before starting to take benefits. However, having a good understanding of how things work could make a difference in your household income, explains a recent article from USA Today titled “Explaining Social Security: TLDR edition: The 8 things you should learn about your benefits.” Simply put, if your earnings are wrong, you may get less money than you’re entitled to.
Start by checking your earnings records. In the past, Americans received a yearly paper statement of records and benefits. Today, you’ll need to create a “my Social Security” account to review your earnings and benefits information. It’s easy enough to do, so don’t delay.
There’s no time limit on correcting earnings errors. The information can be found in earnings records, which can be seen in tax returns or W-2 forms. The exception to this is self-employed earners, and their limit is tight. They have exactly three years, three months and 15 days to correct any earnings reports.
Routinely checking benefit amounts is smart for planning household cash flow in retirement. Today’s statements provide estimates of monthly benefits every year from age 62 to 70, including full retirement age.
A critical data point for Social Security benefits: your full retirement age, or FRA. This is the age when you can receive your full benefit retirement amount, determined by the year you were born. All of this information is all on the Social Security website.
You don’t have to wait to reach FRA to start collecting benefits. You can file for benefits anytime between age 62 and 70, but if you decide to start taking benefits before FRA, the monthly amount is reduced permanently. On the other hand, if you delay benefits until after FRA, you are eligible for delayed retirement credits and may see an increase in your monthly benefit. The choice is yours, but it’s better to make an informed decision that best suits your needs.
Social Security benefits were never intended as a sole source of retirement income. The goal is to replace about half of a low earner’s pre-retirement salary, about 40% of an average earner’s pre-retirement salary and about a third of a high earner’s pre-retirement salary.
Benefits are calculated on the monthly average of the top 35 highest earning years. It’s really that simple. If you haven’t worked for 35 years, zeros are used for those non-working years, which lowers the monthly average and by extension, the monthly benefit.
There is an option to start collecting before FRA called the voluntary payment suspension. If you’ve started taking benefits before FRA, you can voluntarily request to suspend retirement benefits at your FRA and wait to receive benefits at a higher amount. This request can be made as many times as you wish between FRA and age 70. Be aware that if you suspend your own benefit, anyone who receives a benefit on your work record will have their benefits suspended as well, except for divorced spouses.
If spouses have different income levels, it often makes sense for the higher earner to wait to collect until age 70. However, if the higher earner dies after starting benefits at age 70, the surviving spouse will receive the deceased’s age 70 benefit.
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Reference: USA Today (Nov. 5, 2021) “Explaining Social Security: TLDR edition: The 8 things you should learn about your benefits”