(Katie Brockman)
Social security benefits can be a significant source of income in retirement, so it’s wise to make sure you’re making the most of it. While Social Security can be a confusing subject at times, understanding how the program works can help you maximize your checks. You don’t need to know every detail of 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 get paid. By avoiding these three common misconceptions, you can retire with the best possible preparation.
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Myth #1: Social Security benefits cover all of your expenses
According to a 2021 Nationwide Retirement Institute survey, nearly a third of baby boomers believe Social Security alone should be enough to fund retirement, and nearly 20% of baby boomers have no other savings outside of their benefits. In reality, Social Security benefits should only replace about 40% of your preretirement income. Unless your expenses are drastically reduced in retirement, you probably need at least some savings to make ends meet.
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Exactly how much you need to save depends on your future expenses, how many years you expect to have in retirement, and several other factors. But when you retire expecting Social Security to cover all your bills, you might be in for a surprise.
Myth #2: Your benefit amount will increase once you reach full retirement age
If you apply for Social Security early, you’ll get smaller checks. However, according to a Nationwide survey, a whopping 69% of baby boomers believe their pension size will increase once they reach full retirement age (FRA).
Generally, once you apply for Social Security, your benefit amount is locked for life. This means that if you take it early, you’ll get smaller payments for the rest of your pension. While you get small cost-of-living adjustments each year to help protect against inflation, achieving your FRA doesn’t result in an increase in performance.
Myth #3: Postponing performance is always best
While claiming benefits early will result in smaller checks each month, delaying filing until after your FRA will give you larger payments. So it seems that waiting a few years is the best move as it will increase your monthly income.
However, deferring benefits is not the right move for everyone. In some cases it is even better to submit the application early.
Delaying Social Security is generally best if your primary goal is to increase your monthly income. Waiting until age 70 to file could add hundreds of dollars a month to your payments, which can go a long way.
However, if you already have a solid retirement plan, you may not necessarily need that extra income. If you have health issues or other reasons to think you might not live longer than average, availing it earlier could give you more time to enjoy your money.
Make the most of Social Security
Social security can be complex and confusing at times, but it pays to understand it as best you can. By avoiding these common myths and misconceptions, you can ensure you have the right strategy in place to maximize your retirement benefits.
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