With so much information and misinformation floating around, it should come as no surprise that people are often left frustrated and confused when trying to find clear answers to some of the their questions concerning Social Security retirement benefits. What follows are 5 of the most common questions (fueled by misinformation) that I get on this topic, followed by my best effort to provide straight, concise answers.
Q. Am I required to start collecting retirement benefits when I reach my full retirement age?
A: No. You are advised to wait until you reach your full retirement age to begin drawing your retirement benefits in order to ensure that you receive the full benefits that you are entitled to based on your earning record, however you are not required to draw at this age. You have the option of waiting and accruing additional credits at a rate of 8% per year for each year you wait, until you reach the age of 70. Once you reach 70, draw! There are no additional benefits past this point.
Q. Are my benefits calculated based on the last few years of my income?
A: No. Generally speaking, to be eligible for retirement benefits, you must have earned at least 40 credits. You can earn one credit per quarter of the year you worked. That means, you can earn up to 4 credits per year and must do so for roughly 10 years. If you worked more than that, great. The SSA will take your 35 highest income quarters (adjusted for inflation) and use those to calculate your benefit rates.
Q. I am planning on retiring early at age 62 or 63. If I draw retirement benefits at this age, will the amount increase once I hit my full retirement age of 65 or 66?
A. Unfortunately, no. If you choose to draw retirement benefits early (before your full retirement age based on the year/month of your birth), then your retirement benefit rate will be permanently reduced by 25%-30%. If you are earning a limited income, this amount can change to allow for the income. With that said, if you are pursuing a disability claim, you can draw early retirement benefits at the reduced rate while you pursue your claim. If you win your disability claim, your benefits will be raised to the full disability rate (same as the retirement rate). However, if you lose your disability claim, you remain locked into the early retirement benefit rate.
Q. I made good money while I was working, my retirement benefits from the SSA should be enough for me to live on in retirement. Right?
A. Wrong. The average monthly benefit for retirement is around $1400.00. This amounts to less than $17,000.00 per year. Healthcare alone for a senior can average half that amount alone. Retirement benefits should be factored into an overall retirement plan, but they should not be the sole source of income for anyone.
Q. Do I need to worry about healthcare? I thought Medicare would cover most of what I need.
A. Medicare has many parts. Part A and B cover many of your needs but there are additional holes that will need to be filled involving expensive prescription drugs, dental care, etc. You will likely need to purchase a Part D plan and dental insurance separately.
Did I miss any of your questions? If so, do not be afraid to ask!