If you're finding it difficult to keep up with all of the changes to Social Security, you're not alone. In fact, clients come to our retirement plan advisors with questions about this complex program every day!
It's easy to see why the program generates questions; after all, an estimated 165 million workers pay Social Security taxes each year, and almost 60 million people receive benefits, so Social Security is a program that touches most Americans' lives at some point or another.
Here's what retirement investment advisors want you to know about Social Security.
What does "Full Retirement Age" Mean for Your Investment Planning?
Choosing exactly what age you'll retire doesn't just affect your retirement planning goals; it also affects the amount of Social Security benefits you'll be eligible to receive. And when it comes to getting your full benefit amount, "Full Retirement Age" -- or the age at which you first become eligible for unreduced or full benefits -- is key.
Here's how the Social Security Administration defines age limits:
|Year of Birth||Full Retirement Age|
|1954 and earlier||66|
|1955||66 and 2 months|
|1956||66 and 4 months|
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 months|
|1960 and later||67|
Though you can begin to claim benefits before you reach full retirement age, you won't receive the maximum payment. For instance, if you start claiming benefits at age 62 (the earliest age to claim), you might receive $750 per month, whereas if you wait until age 66, you might receive $1,000 per month.
However, just because you've reached full retirement age doesn't mean you'll receive the largest possible benefits. For each year you wait to claim benefits, you'll receive 8 percent more. This concept, known as delayed retirement credits, means the the largest possible payment you can receive is available if you wait until age 70 to start claiming benefits.
Retirement Plan Advisors Suggest Avoiding $0 Income Years
Say you decide to retire at age 62, but then wait a few years to hit full retirement age before you start claiming Social Security. In between, you'll have about five years with zero income from a job. Those years will be factored into your benefits --- which are based on the 35 years of highest earnings in your history. Usually, your earnings are highest in your 50s and 60s, offsetting the lower wages many earn in the early years of their career. If you stop working, those non-income years may lower the amount of benefits you're eligible to receive.
Spousal and Survival Benefits: Navigate with a Wealth Advisor's Help
Another complicated factor? Spouse and survival benefits. Many assume they can simply claim a spousal benefit as long as they're 62 and over, but this isn't the case. You're actually not eligible until your spouse has claimed Social Security themselves.
Similarly, many assume that surviving spouses automatically receive all of their deceased spouse's benefits. The surviving spouse can claim 100 percent of these benefits, but only if they wait to claim until they reach full retirement age.
These complex issues may be easier to navigate with a trusted wealth advisor, so don't be afraid to ask for help deciphering the rules.