As you near the home stretch of your career and get closer to retirement age, it’s time to do a deep dive into your finances to ensure you’re as prepared as possible for your senior years. Your 50s are a prime time to think about what age you plan to retire, as well as double-check that your savings are on track.
One other important factor to consider is how Social Security benefits will play into your retirement plan. Around half of baby boomers expect their monthly checks to be their primary source of income in retirement, according to a survey from American Advisors Group. If you’re expecting Social Security to help cover your future expenses, it’s especially important to make sure you’re making these three moves before you retire.
1. Think about what age you want to begin claiming benefits
The age you file for benefits will affect how much you receive each month for the rest of your life. By claiming at your full retirement age (FRA) — which is age 67 for those born in 1960 or later, or either 66 or 66 and a few months for those born before 1960 — you’ll receive the full benefit amount you’re entitled to collect. However, if you claim before or after your FRA, you’ll receive smaller or bigger checks.
The earliest you can begin claiming benefits is age 62, but by doing s, your checks will be permanently reduced by up to 30%. You can also delay claiming benefits until after your FRA to receive extra money each month on top of your full benefit amount. For example, if you have a FRA of 67 and you wait until age 70 to claim, you’ll receive your full benefit amount plus an additional 24% each month. Although you can wait until after age 70 to claim, you won’t receive any extra money in benefits by delaying past that age.
Because the age you claim affects the size of your monthly checks, it’s important to take this decision seriously. There’s also no one-size-fits-all approach to when you should claim, because it depends on your personal situation. If your retirement fund isn’t as robust as you’d like, for instance, delaying benefits may be a good idea to earn those bigger checks. Or if you’re not in the best health and have reason to believe you may not spend decades in retirement, claiming early may be your best bet so you have as much time as possible to enjoy your money. Regardless of when you claim, be sure you’ve thought about how your decision will affect your benefits.
2. Check your estimated benefit amount online
It can be tough to figure out how Social Security benefits will factor into your retirement if you’re unsure how much you’ll actually be receiving. The average retiree receives roughly $1,500 per month in benefits, according to the Social Security Administration, but the amount you receive will depend on your work history.
Fortunately, there’s an easy way to check your future benefit amount before you begin claiming. By creating a mySocialSecurity account online, you can get an idea of how much you’ll receive in benefits based on your real earnings. With this number in mind, it will be easier to see how much you’ll be able to depend on your benefits in retirement and how much you’ll have to save on your own.
One thing to keep in mind, though, is that this estimate assumes you’ll file for benefits at your FRA. If you’re planning on claiming before or after that age, it will affect how much you receive each month.
3. Consider how many years you want to work
Your full benefit amount (or the amount you’ll receive if you claim at your FRA) is determined based on the number of years you work and how much you earned during those years. The Social Security Administration looks at the 35 highest-earning years of your career, averages those earnings, then adjusts them for inflation to come up with your full benefit amount (also referred to as your “primary insurance amount”).
If you won’t have worked a full 35 years before you file for benefits, it will affect your monthly checks because you’ll have zeros added to your average to account for each year you weren’t working. But if you work more than 35 years, you could potentially boost your benefit amount. Because your current salary is likely higher than what you were earning a few decades ago, working more than 35 years could allow you to replace some of your lower-earning years with higher-earning years. That could result in a higher earnings average, as well as more money in benefits.
When you’re just a few years from retirement, it’s important to make sure you have a Social Security strategy in place. The more thought you put into your plan, the better off you’ll be in retirement.
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