There's a good chance Social Security will play an important role in your retirement, so understanding how the program works is essential. But just how confident are you in your Social Security knowledge?
In a recent Nationwide survey of close to 2,000 adults aged 25 and over, only 18% said they're very confident in their Social Security knowledge. And while the majority of respondents did express some level of confidence, given the significance of Social Security, aiming for “very confident” certainly isn't a bad thing.
If you feel like you're too clueless for comfort about Social Security, here are a few key points that you definitely need to know.
1. Benefits are earnings-based
There's no such thing as a universal Social Security benefit. Rather, benefits are calculated on an individual basis and determined based on your 35 highest-paid years in the workforce.
There is a maximum benefit that applies to higher earners. But otherwise, the amount of money you collect in Social Security may differ from what your spouse, friend, or neighbor collects.
2. You can choose your filing age
Social Security gives recipients a lengthy window of time to sign up for benefits. That window begins at age 62 and technically has no end date, though there's no financial reason to not sign up by age 70.
If you file for benefits at what's known as full retirement age, you'll get the precise monthly payday your earnings history entitles you to. Full retirement age is based on your year of birth, and it's either 66, 67, or 66 and a certain number of months.
For each month you claim benefits before full retirement age, they get reduced on a permanent basis. On the other hand, if you delay your filing beyond full retirement age, your benefits will increase for each month you hold off, up until age 70.
3. You need 40 work credits to qualify for a benefit of your own
Eligibility for Social Security hinges on earning enough work credits in your lifetime. The value of a work credit changes from year to year. In 2020, it was $1,410. In 2021, it's $1,470. You can only earn a maximum of four work credits per year.
If you don't accumulate 40 work credits in your lifetime, you won't be eligible for your own benefit in retirement. But that doesn't mean you won't get a benefit at all. If you're married to someone who's entitled to benefits or are divorced from someone in that boat, you can collect a spousal benefit based on your spouse or ex-spouse's work record.
Educate yourself on Social Security
It's generally a good idea to have income outside of Social Security available to you during retirement, since those benefits may not be generous enough to cover all of your living costs. But still, boosting your Social Security knowledge is an extremely important thing to do.
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