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Whether you realize it or not, social security is the most important social program in our country. Of the 63 million benefit checks disclosed each month, more than 22 million are responsible for climbing above the federal poverty line, which in 2019 represents earned income of $ 12,490 for a single person. This ability to provide a financial base is particularly prevalent among seniors, where the estimated poverty rate would be north of 40% if the program did not exist, according to a Center analysis on fiscal and policy priorities.
However, social security is also a program on which we tend to rely too much. Although it is designed to replace about 40% of the average worker's salary in retirement, 62% of today's retirees spend at least half of their monthly income, 34% of them. 39, considering social security as their only source of income.
That said, no decision is more important for seniors than deciding when to take their benefits.
Source of the image: Getty Images.
What's in the calculation of your social security benefit?
As a reminder, the Social Security Administration (SSA) uses a formula to determine your monthly payment. This formula takes into account four main factors.
The first two factors – your work history and your incomes – are related to the hip. If the SSA uses your 35 most-paid and inflation-adjusted years in calculating your benefit at retirement age, this means that you want to work for at least 35 years and earn as much as you can during your years. work – within the taxable limit of the payroll – if you want to maximize your earnings. Each year, less than 35 hours worked will result in an average of $ 0 in your overall calculation, which will slow down your potential payment.
The third factor is your year of birth, which helps determine your retirement age. This is the age at which the SSA considers you eligible to receive 100% of your monthly benefit. Claiming at any time before this age means accepting a permanent reduction in your benefit, while waiting until after your retirement age reaches full age, you will benefit from a permanent monthly premium.
The fourth and final factor is your claim age, which can probably have the biggest impact on what you will be paid each month. Retirement benefits can start at age 62 or at any time thereafter. However, there is a pretty big "bonus" if you decide to be patient.
Each year of delay will be increased by about 8% until the age of 70. This means that, all other things being equal (ie work and earnings history and year of birth), a 70-year-old claimant could earn 76% more per month than someone else. one who claims to be 62 years old.
Source of the image: Getty Images.
The most important social security table you will ever see
For those of you who are more visual learners, I will introduce you to what could very well be the most important social security table you will ever see. It's a presentation that describes what you will receive from the social security program based on your year of birth and your age.
For persons born between 1943 and 1954, the retirement age is 66 years. For people born in 1960 or later, he is 67 years old. For people born between 1955 and 1959, the retirement age increases by two months a year. Thus, for those born in 1955, it is 66 years and two months, for 1956, 66 years and four months, and so on until it is affixed to 67 years for those born in 1960 or after.
Once you know the age of your retirement, you can use the following chart to understand the dynamics of your payments.
| year of birth | 62 years | 63 years | 64 years old | 65 years | 66 years | 67 years | 68 years | 69 years | 70 years |
|---|---|---|---|---|---|---|---|---|---|
| 1943-1954 | 75% | 80% | 86.7% | 93.3% | 100% | 108% | 116% | 124% | 132% |
| 1955 | 74.2% | 79.2% | 85.6% | 92.2% | 98.9% | 106.7% | 114.7% | 122.7% | 130.7% |
| 1956 | 73.3% | 78.3% | 84.4% | 91.1% | 97.8% | 105.3% | 113.3% | 121.3% | 129.3% |
| 1957 | 72.5% | 77.5% | 83.3% | 90% | 96.7% | 104% | 112% | 120% | 128% |
| 1958 | 71.7% | 76.7% | 82.2% | 88.9% | 95.6% | 102.7% | 110.7% | 118.7% | 126.7% |
| 1959 | 70.8% | 75.8% | 81.1% | 87.8% | 94.4% | 101.3% | 109.3% | 117.3% | 125.3% |
| 1960 or later | 70% | 75% | 80% | 86.7% | 93.3% | 100% | 108% | 116% | 124% |
Table by author. Data source: Social Security Administration.
Let's look at some examples, but we will first need a baseline. In January 2019, the average amount of social security benefits paid to retired workers was $ 1,464 per month. Just for the sake of simplicity, let's assume that's what you'll receive per month at retirement age.
First, we have a baby boomer born in 1954 who decides when to take his benefits. Waiting until the age of retirement (age 66) would give that person the full payment of $ 1,464 per month.
But let 's say that they are not healthier and decide that the age of 63 makes sense as a claim age. At age 63, the table shows that persons born between 1943 and 1954 will receive 80% of their retirement pension every month. Thus, 80 per cent of the $ 1,464 represents $ 1,171.20 per month. The tradeoff here is that this person must accept a monthly lifetime discount of their 20% payment, but will receive payments from years earlier than those who choose to wait.
How about a millennium that will retire in three decades and so is part of the crowd "born in 1960 or later"? The chart above shows that millennia will have to wait until age 67 to raise $ 1,464 a month, a full year more than many baby boomers. Of course, if they really wait and claim their benefits at age 70, they would receive a bonus of 24% each month, or $ 1,815.36.
Source of the image: Getty Images.
Monthly benefits are not everything
Now that you have the knowledge and the ability to understand how your retirement age and your claim decision will affect your monthly payment, let me leave you with an important additional suggestion: do not focus too much on your monthly benefits.
Deciding when to claim benefits is a personal decision that involves many variables that are unique to you and you alone. While some guidelines may help you choose the right time to reap the benefits, there is no ideal model to ensure you get the most out of the program.
Instead of thinking about when to make a decision about your social security claim, think about the variables that will help you get the most out of the program in your lifetime. lifetime. If, for example, you are in excellent health and your immediate family has lived in their 80s and beyond, a late claim may seem perfectly logical, even if you do not know your life expectancy. Again, a first application could be just as lucrative for people in poor health, even with a permanent reduction in their monthly payments.
Everything is relative to your variables. Do not forget that.
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