Social Security benefits can make up a substantial source of income in retirement, so it's wise to ensure you're making the most of them. While Social Security can sometimes be a confusing topic, understanding how the program works can help you maximize your checks. You don't need to know every detail about how your benefits are calculated, but a solid understanding of the basics can go a long way.
There are a few pervasive myths surrounding Social Security that could potentially affect how much you receive. By avoiding these three common misunderstandings, you can head into retirement as prepared as possible.
Myth No. 1: Social Security benefits will cover all your expenses
Nearly one-third of baby boomers believe that Social Security alone should be enough to fund retirement, according to a 2021 survey from the Nationwide Retirement Institute, and nearly 20% of boomers don't have any other savings outside of their benefits. In reality, Social Security benefits were only designed to replace around 40% of your pre-retirement income. Unless your expenses are drastically reduced in retirement, it's likely you'll need at least some savings to make ends meet.
Exactly how much you need to save will depend on your future expenses, how many years you expect to spend in retirement, and several other factors. But if you're headed into retirement expecting Social Security to cover all your bills, you could be in for a surprise.
Myth No. 2: Your benefit amount will increase once you reach your full retirement age
When you claim Social Security early, you'll receive smaller checks. A whopping 69% of baby boomers, however, believe that their benefit amount will increase once they reach their full retirement age (FRA), according to a poll from Nationwide.
In general, once you file for Social Security, your benefit amount is locked in for life. That means if you claim early, you'll receive smaller payments for the rest of your retirement. While you will earn small cost-of-living adjustments each year to help protect against inflation, reaching your FRA won't result in a benefit boost.
Myth No. 3: Delaying benefits is always best
While claiming benefits early will result in smaller checks each month, delaying filing until after your FRA will earn you larger payments. It may seem, then, that waiting a few years is the best move, since it will boost your monthly income.
However, delaying benefits isn't the right move for everyone. In some cases, you may actually be better off filing early.
Delaying Social Security is generally best if your primary goal is to increase your monthly income. Waiting until age 70 to file could boost your payments by hundreds of dollars per month, which can go a long way.
If you already have a robust retirement fund, though, you may not necessarily need that extra income. Similarly, if you have health issues or other reasons to believe you may not live a longer-than-average life span, claiming earlier could give you more time to enjoy your money.
Making the most of Social Security
Social Security can be complex and confusing sometimes, but it pays to understand it the best you can. By avoiding these common myths and misunderstandings, you can ensure you have the right strategy to maximize your benefits in retirement.
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