'Social Security is your retirement income anchor': When to claim, explained

Robert Powell, Special to USA TODAY

Sun, Jan 17, 2021, 5:44 PM 5 min read

You certainly don't have to be an expert on Social Security. But knowing a thing or two about Social Security could greatly improve your chances of having the retirement you desire.

Here's what experts say you need to know.

How much of your pre-retirement income will Social Security replace?

Social Security was never meant to be the only source of income for retirees. But it will replace a percentage of your pre-retirement income based on your lifetime earnings. How much will vary based on your earnings and when you decide to retire.

For instance, if you start benefits in 2021 at your full retirement age, or FRA, this percentage ranges from as much as 78% for very low earners, to about 42% for medium earners, to about 28% for high earners, according to the Social Security Administration's primer on Social Security benefits.

On average, financial advisers say you should aim to replace 70% of your pre-retirement income to live comfortably in retirement. But high earners might need to replace less, and low earners replace more.

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No matter the percent, it's wise to learn how much of your pre-retirement income Social Security will replace. "It's absolutely vital," says Andy Landis, author of "Social Security: The Inside Story."

"For many, Social Security is the bulk of retirement income. For everyone else, Social Security is your retirement income 'anchor.' Think of it as the foundation of all your retirement finances."

Others agree. "I believe that Social Security should be the foundation of everyone's retirement income plan," says Brian Vosberg, a certified financial planner with Vosberg Wealth and author of The Complete Retiree's Guide to Social Security. "It's a government-guaranteed income source that has a built-in cost of living adjustments. Don't underestimate the power of what Social Security can pay you over your lifetime."

What is your FRA?

Knowing when you are entitled to 100% of your Social Security benefits, your primary insurance amount, is critical, experts say. And your FRA depends on your birth year.

For instance, if you were born from 1943 to 1954 your FRA is 66. The FRA then increases gradually if you were born from 1955 to 1960 until it reaches 67. And for anyone born 1960 or later, full retirement benefits are payable at age 67. Use this chart to find out your FRA.

Another important reason to know your FRA, says Vosberg, is to determine if you are subject to the retirement earnings test. Under the Social Security retirement earnings test, the monthly benefit of a Social Security income recipient who is below his or her FRA will be reduced if his or her earnings exceed an annual threshold, Vosberg says.

When to claim Social Security

Deciding when to claim Social Security has financial consequences. For instance, Social Security will reduce permanently your benefits if you start early by about one-half of 1% for each month you start receiving benefits before your FRA.

"When you claim your Social Security will impact you throughout your retirement," says Vosberg. "If you elect to take benefit early, you are accepting a lower benefit for the rest of your life.

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Consider: If you were born in 1959, your FRA is 66 and 10 months. And if you sign up for Social Security when you're 62, the earliest age at which you can claim Social Security, you will get about 70.8% of your full benefit.

Ultimately, the reduction can be as high as 30%, said Vosberg.

Social Security, by contrast, will increase your benefit if you wait to claim after FRA. The increase, often referred to as delayed retirement credits, is based on your date of birth and the number of months you delay the start of your retirement benefits, according to Social Security.

So, for instance, if you were born in 1957 your FRA is 66 and six months. And if you claim then, you'll get 100% of your monthly benefit. But if you start receiving retirement benefits at age 67, you'll get 104% of the monthly benefit because you delayed getting benefits for six months. And if wait to claim until age 70, you'll get 128% of the monthly benefit because you delayed getting benefits for 42 months.

Ultimately, you could have 32% increase in benefit for life by waiting to claim until age 70, said Vosberg.

"Knowing what you are entitled to at different ages – 62, full retirement age, 70 – is important as you put together your retirement income plan," said Vosberg.

Of note, you can get personalized Social Security benefit estimates by creating a "my Social Security" account at www.ssa.gov/myaccount.

Landis recommends monitoring your Social Security "balance" just like you do your bank account or 401(k). "Review your past earnings for accuracy," he says. "Those determine what you'll get. And study the projected payments at different starting ages. Pick the start date that works for you."

This article originally appeared on USA TODAY: When to claim Social Security benefits? We explain

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