When you begin receiving Social Security benefits, the amount you receive each month is not necessarily permanent. Several factors can influence the size of your check over time, and understanding these can help you maximize your benefits. One of the most crucial decisions you’ll make is determining the age at which you start claiming your Social Security retirement benefits. This decision significantly impacts your financial well-being in retirement.
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Claiming Social Security Benefits: Timing is Everything
Claiming Social Security benefits before reaching full retirement age generally results in a lower monthly payment. Conversely, delaying benefits until after reaching full retirement age can significantly increase the amount you receive. Specifically, the difference between claiming benefits at age 62 versus waiting until age 70 can result in a substantial 77% increase in your monthly benefits.
However, if you’ve already begun receiving Social Security, it’s important to know that there is still a way to potentially increase the amount of your monthly check. By utilizing a particular strategy, you could enhance your Social Security benefits by as much as 26.7%.
Key Factors Influencing Social Security Benefits
Before exploring the strategy to increase your benefits, it is essential to understand the fundamental factors that determine how much you receive each month from Social Security. The Social Security Administration (SSA) calculates your benefits based on three primary components:
1. Lifetime Earnings
The amount you earned during your working years plays a pivotal role in determining your Social Security benefit. The SSA reviews your earnings history, adjusting for wage inflation over time. It identifies your 35 highest-earning years, averages the earnings from those years, and then divides the sum by 12 to calculate your average indexed monthly earnings (AIME).
2. Year of Birth
The year you were born influences your full retirement age (FRA), which is the age at which you can claim full Social Security benefits. For individuals born in 1954 or earlier, the FRA is 66. For those born after 1954, the FRA gradually increases by two months each year until it reaches 67 for those born in 1960 or later.
3. Age at Claiming
The age at which you decide to claim Social Security benefits directly affects the size of your monthly check. If you claim benefits before reaching your FRA, you will receive a reduced amount. On the other hand, delaying benefits beyond your FRA earns you delayed retirement credits, which increase your monthly benefit by two-thirds of a percent for each month you delay, up until age 70.
To illustrate, delaying your Social Security benefits until age 70 can increase your monthly payment by 24% to 32%, depending on your year of birth. Fortunately, even if you have already claimed your benefits early, there is still an opportunity to accrue these valuable delayed retirement credits.
The Strategy to Increase Your Social Security Benefit
One effective way to potentially boost your Social Security benefit is by requesting the SSA to suspend your benefits. This lesser-known option allows you to temporarily stop receiving your monthly payments while continuing to accumulate delayed retirement credits for each month you defer. These credits are then applied when your benefits resume, resulting in a higher monthly check.
You are eligible to suspend your benefits at any point after reaching your FRA. Once the SSA approves your request, the suspension takes effect from the following month. If you do not resume benefits before age 70, they will automatically restart at that time.
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Important Considerations Before Suspending Your Benefits
Before deciding to suspend your benefits, there are a few crucial factors to keep in mind:
Impact on Spousal Benefits
If anyone else is collecting benefits based on your earnings record, such as a spouse, their benefits will be affected. Specifically, they will no longer be able to receive benefits during the suspension period, unless they are a divorced spouse.
Medicare Premiums
If you are enrolled in Medicare, you need to plan for paying your Part B premiums out of pocket during the suspension, as these premiums are typically deducted from your Social Security payments. It is important to budget for these expenses if you decide to temporarily halt your benefits.
Maximizing your Social Security benefits requires careful planning and strategic decisions about when to claim and whether to suspend benefits. Understanding the factors that influence your benefits and knowing your options can significantly impact your financial security in retirement. By carefully considering these elements, you can make the most out of your Social Security benefits and ensure a more comfortable retirement.