Did you know that the amount of your Social Security check isn’t fixed once you claim benefits? Several factors can influence how much you receive each month, with cost-of-living adjustments (COLAs) being just one of them.
Impact of Claiming Age
The age at which you decide to claim your Social Security retirement benefits can significantly impact your financial situation. Those who claim early, at age 62, receive a smaller benefit compared to those who wait until age 70. For instance, claiming benefits at age 62 could give you $1,465 per month, whereas waiting until age 70 could increase this to $2,634—a 79% boost.
Increasing Benefits
Even if you’ve already started receiving benefits, it may not be too late to increase your monthly retirement payment. One strategy can boost your payments by up to 26.7%. Let’s dive into the details of how to enhance your benefit and understand the basics of how the government calculates your monthly check.
Calculating Your Benefits
Three primary factors determine your Social Security benefit:
- Work History: The number of years you have worked and paid into Social Security.
- Age of Claim: The age at which you decide to start receiving benefits.
- Average Indexed Monthly Earnings (AIME): Your average monthly earnings over your highest-earning 35 years, adjusted for inflation.
By understanding these factors, you can make informed decisions that could significantly improve your financial well-being in retirement.
From AIME to Your PIA
The Social Security Administration (SSA) examines your earnings history over your career, adjusting each year’s earnings for changes in wage inflation. Here’s how it works:
- The SSA looks at your entire earnings history.
- It adjusts each year’s earnings for wage inflation.
- The SSA then selects your 35 highest-earning years.
- It calculates the average earnings for those years.
- This average is then divided by 12 to determine your average monthly earnings.
Once the SSA has your AIME, they determine your primary insurance amount (PIA), which is the monthly benefit amount you would receive if you claim your benefits at your full retirement age (FRA). The FRA varies based on your birth year:
- Born in 1954 or earlier: FRA is 66.
- Born after 1954: FRA increases by two months for each year until it reaches 67.
- Born in 1960 or later: FRA is 67.
Impact of Claiming Age
Timing is crucial for Social Security benefits. Claiming before your FRA results in receiving only a portion of your PIA. Conversely, delaying your claim beyond your FRA can earn you delayed retirement credits, increasing your Social Security benefit by two-thirds of a percentage point of your PIA for each month you delay, up to age 70.
How Your Birth Year Affects Benefits
Your birth year determines your full retirement age and the percentage of your PIA you will receive at different claiming ages:
- Age 62: Earliest age to start receiving benefits, but at a reduced amount.
- Age 63 to 70: Gradual increases in benefit amount for each year you delay claiming past age 62.
- Age 70 or Later: Maximum benefit amount, as delaying beyond this age does not increase benefits further.
Hidden Rules
Many people are unaware that their Social Security benefit amount can still change even after they’ve started receiving payments. One effective method to increase your benefits is by suspending them. When you suspend your benefits, you temporarily stop receiving your monthly check, and the SSA adds delayed retirement credits based on your previous benefit amount for each month you wait.
How to Suspend Benefits
- You can choose to suspend your benefits at any point once you reach full retirement age.
- The suspension begins the month after the SSA approves your application.
- If you haven’t restarted your benefits by age 70, they will automatically resume.
For those born in 1958, reaching full retirement age this year or next year means hitting the milestone at 66 years and 8 months. By suspending your benefit upon reaching this age, you can significantly boost your benefits by 26.7%. However, for those beyond full retirement age or with later full retirement ages, the potential increase will be more limited.
Important Considerations
- Impact on Dependents: Anyone collecting benefits on your earnings record, except a divorced spouse, will no longer be eligible to continue doing so if you suspend your benefits. For instance, a spouse collecting spousal benefits will revert to their personal benefit.
- Medicare Premiums: If you are enrolled in Medicare, you need to account for Part B premiums. Typically, the SSA deducts these premiums from your monthly check, but if you suspend your benefits, you will have to pay these premiums out of pocket.
Planning Your Retirement
Deciding when and how to claim your benefits is a critical part of retirement planning. While suspending benefits can lead to a substantial increase, it is essential to know the potential impact on your overall financial situation.
Consider the immediate boost to your benefit and the implications for those who rely on your earnings record and your healthcare costs. By carefully weighing these factors, you can make a more informed decision that aligns with your retirement goals and needs.
FAQs
Can you change your Social Security amount after claiming benefits?
Yes, by suspending your benefits to earn delayed retirement credits.
What is the impact of claiming Social Security early?
Claiming early reduces your monthly benefits.
How much can delaying benefits increase your Social Security check?
Delaying until age 70 can boost benefits by up to 79%.
What happens if I suspend my benefits?
Your benefits temporarily stop, and you earn delayed retirement credits.
Do Medicare premiums affect suspended benefits?
Yes, you’ll need to pay Medicare premiums out of pocket if benefits are suspended.
