Do you know exactly how your monthly Social Security benefit will be calculated?
Most people don’t have a clear picture of the formula used to set their retirement checks — or of the decisions they make that could affect the amount of income they end up with in their later years.
One reason why it’s so complicated to estimate future Social Security benefits is that several surprising factors impact how much support these benefits offer you as a senior. In particular, you may be shocked to discover that these three criteria will play a huge role in determining your monthly benefit.
1. How many years you work
Social Security benefits can actually end up being higher if you work longer, and lower if your career is shorter. There’s a simple reason for that. Social Security’s benefits formula is always based on a 35-year work history.
If you work exactly 35 years, you’ll get benefits equaling a percentage of average wages over your entire career. If you work less than 35 years, your benefits will still equal a percentage of average wages over that time frame. But, they’ll be lower because in some years the wages in your formula will be $0. And if you work longer than 35 years, the Social Security Administration will only consider your highest-earning years after adjusting for inflation. So, your benefits can end up higher because lower-earning years won’t count and drag down your average wage.
You only need a 10-year work history to get benefits, as long as you earn a sufficient number of work credits in each of those 10 years. But if you want to maximize your benefit, working at least 35 years — and potentially more if your salary has gone up over time — is going to be your best bet.
2. When you start your checks
Retirees get a choice about when to start Social Security, but making the wrong decision could come at a cost as it could leave seniors with less lifetime benefits.
Seniors can file for benefits as soon as they’ve reached age 62, but everyone has a full retirement age (FRA) that’s between 66 and 2 months and 67, depending on birth year. A claim before FRA results in a reduced monthly benefit, but a claim after it results in an increased benefit until 70.
Starting benefits ASAP can make sense for those who don’t think they’ll live very long, as it can be best to start bringing in Social Security income right away even if each benefit check is smaller. However, anyone with a spouse who is likely to depend on survivor benefits or who may outlive their life expectancy would likely do better by delaying their claim as long as possible.
You’ll have to think about whether you’d prefer more checks that start early, even if each one is smaller, or if you’d prefer to delay the start of your checks to increase the amount — even if that means you could end up with less lifetime income if you pass away early.
3. Your marital status
It may seem odd, but your marriage can impact Social Security benefits. That’s because married people (or those who divorced after a marriage of at least 10 years) could be entitled to spousal or survivor benefits.
Spousal or survivor benefits are claimed on a spouse’s work record. They can be useful if they’re larger than your own benefits, or if you aren’t eligible for your own benefits at all because you didn’t work long enough.
Spousal benefits, which become available after your husband or wife has claimed their own checks, could equal up to 50% of your partner’s benefit at full retirement age. Survivor benefits, on the other hand, become available after the death of a spouse and could equal up to 100% of the deceased person’s benefit at full retirement age or the amount the deceased was receiving when they passed.
It’s important to know whether you’re eligible for these benefits, as they could provide much-needed extra income. If you’re the higher-earning spouse, you’ll also have to think about how your decision to file for your own checks could affect your partner’s eligibility for spousal benefits or the amount of survivor benefits they receive.
Understanding all these unique rules is crucial to making the best and most informed choices about Social Security, so be sure that you research and understand them before you start your benefit checks.
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