Social Security provides one of the highest anticipated retirement incomes for most working Americans — a pot of gold at the end of their professional lives. But many people get it wrong based on Social Security income, and this ignorance can prove costly. Here are five common mistakes people make when thinking about Social Security, and why it pays to avoid them.
1. All senior citizens get equal benefits
40% of working adults believe everyone gets the same amount from Social Security in retirement. Instead, benefit payments are tied to your earnings and the amount you contributed to Social Security taxes throughout your working years.
The Social Security Administration uses recipients’ average monthly income over the years to calculate the dollar amount each person would receive at their full retirement age. Social Security assumes that workers who earn more during their careers will need less help in retirement. The more you earn before you retire, the smaller percentage of that income Social Security will turn into later.
2. Your benefits will increase at full retirement age, even if you claim them early
You can start collecting Social Security at age 62, but you don’t have to. Social Security full retirement age, after which you automatically begin receiving benefits, varies depending on the year you were born: 66 for people born in 1943 and later, those born in 1960 or later gradually increases to 67.
If you start collecting your benefits before your full retirement age, your monthly check is permanently reduced by about 30%, as Social Security will spread out the total pool of benefit amounts you owe — 78.6 percent over a lifetime. Years based on anticipation – more scrutiny and in a longer period. If you live longer than that, waiting until full retirement age will give you more checks for the rest of your life than if you claimed benefits earlier.
3. Annual COLA is guaranteed
The annual cost of living adjustment, or COLA, uses a subset of the consumer price index known as the CPI-W. Increase in Social Security benefits to offset inflation,
But according to the Social Security Act, benefits increase only if the average CPI-W in the third quarter of the current year is higher than its year-ago counterpart. In some years no profit increases for inflation – but only because inflation has not increased over that period.
4. It is always better to claim Social Security as soon as possible.
There is no one-size-fits-all answer to this important question! If you file early, you’ll have extra cash to travel with and spend time doing the things you love doing at a younger age. You may just need the money, or live with a health condition that makes you think you won’t reach your full retirement age.
But if you’re in average to excellent health, with a higher-than-average life expectancy, you can make more money by waiting. If you plan to work before reaching retirement age, it could potentially reduce your benefits. (More on that below.) And if your lifetime earnings exceed your spouse’s, waiting longer may assure them of a higher Spouse’s Benefitvery.
5. Once I Start Social Security Benefits, I Can’t Work Any More
You can do Keep working – with a few caveats. In 2022, people younger than full retirement age can bring in up to $19,560 in income without penalty. Your profit is reduced by $1 for every $2 you earn over that amount. The income limit increases as you age, and by the month you reach full retirement age, there’s no limit to how much you can earn and still receive your full benefits.
If you’re regretting a permanent reduction in benefits from claiming early, or you’re going back to work with a higher salary, or you’re just bored, you can reverse your decision, as long as You don’t start receiving Social Security benefits at least 12 months before. Once in a lifetime, Social Security offers you a task; You can withdraw your benefits application, pay all the money you received, and file again at a later age.
Social Security is a complex topic because all the variables that come into play are mixed with the unique situation of individuals. Please do your own careful research and talk your local social security office Before taking any important decision.
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