The most important social security board you'll ever see – Motley's Fool

Your social security checks help cover your living expenses in retirement, thus reducing your personal savings. But if you want to maximize your benefits, you need to understand how they are calculated.

There are two key factors that determine how much money you will get each month: your average monthly salary in your 35 highest earning years, and your age at which you start receiving benefits. You can not have a lot of control over the first, but the second is entirely your decision. Here's what you need to know to make the right choice.

How your age affects your social security benefits

You can start collecting social security from age 62, but if you want to receive all of your benefits, you must wait until you reach retirement age (FRA). It is 66 or 67, depending on the year of your birth. If you start before, the Social Security Administration will reduce your checks so that they take into account the extra months that you receive benefits according to this schedule:

1. If you are 36 months or less below your FRA, multiply 5/9 by 1% (0.0056) times the number of months up to your FRA. Multiply this percentage by your planned benefit at FRA, then subtract this amount from your planned benefit at FRA.
2. If you start receiving benefits more than 36 months before your FRA, multiply 5/9 by 1% (0.0056) by 36 and add 5/12 by 1% (0.0042) times the number of additional months during which you are under the FRA. Multiply this percentage by your planned benefit at FRA, then subtract it from your planned benefit at FRA.

So, if you claim 40 months under your FRA, for example, you must multiply 5/9 by 1% (0.0056) by 36 to get 20%, then multiply by 5/12 by 1% (0.0042 ) by 4. the additional four months below your FRA, which would earn you 1.7%. Add the two together and you get 21.7%. Then you would multiply that by your planned social security benefit at FRA – say $ 1,000 for this example – and you would get $ 217. Subtract this from $ 1,000 and you will get a monthly benefit of $ 783 per check if you start claiming benefits 40 months below your FRA.

If you start Social Security as soon as you are eligible to age 62, you will receive only 70% or 75% of your scheduled benefit by check, according to your FRA. You can also defer benefits beyond your FRA and your checks will increase by 2/3 of 1% (0.0067) for each month until you reach the maximum benefits at age 70. This corresponds to 124% or 132% of the Check, again depending on your FRA.

How to choose the right age to start social security

Choosing the right age to start Social security is essential to maximize your benefits for life, but later, it's not always better. Let's take the following example. You are entitled to an average social security benefit of $ 1,467 if you are waiting to receive your FRA of 67, but you do not know if you should start. Claim at age 62 when you only get $ 1,027 by check, or wait 70 years to receive $ 1,819 by check. You expect to live up to 87 years old. So you create the following table to determine the amount of your lifetime benefits if you start at each age. All figures indicate the total amount of your social security benefits received at the end of this year.

If you really live up to 87, waiting until age 70 to start Social Security would bring you the most benefits of your life. But if you only live up to 81 years old, starting with your FRA would offer you the best deal. If you only live around age 77, you'd better start at age 62 right away.

The difficulty is that you never know how long you will live and that you will never know if you choose the right age. But you can give yourself the best you can by choosing your starting age based on your estimated life expectancy. Create a My Social Security account to estimate your benefits for each of the three ages listed in the table. You can use the calculations listed above to determine how much you would get if you started social security at a different age of 62, FRA or 70. Then use this information to create a graph similar to the one above to determine the ideal age for you to start.

Of course, even if you want to wait to start receiving benefits, you may not be able to get them if you really need your checks. In this case, try to delay the benefits as long as you can. Even waiting a month or two can make a difference in how much you receive during your life.