Social Security could end up becoming a very important income source once you enter retirement. This holds true even if you manage to bring a nice amount of savings with you into your senior years.
It's for this reason that filing for benefits strategically is so important. And to pull that off, there's one key number you really need to know.
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Do you know your full retirement age?
The monthly Social Security benefit you'll be entitled to in retirement is based on your wage history -- specifically, your 35 highest-paid years of earnings throughout your career. And you're entitled to that benefit once you reach full retirement age, or FRA.
You're allowed to file for Social Security before FRA, but doing so has consequences -- namely, that you'll slash your monthly benefit for life. And you can also claim Social Security after FRA for an increased benefit. But if you don't know your FRA, it'll be difficult to put together a well-thought-out filing strategy.
Your FRA is based on the year you were born. You can consult this table to see what yours is:
|
Birth Year |
Full Retirement Age |
|---|---|
|
1943-1954 |
66 |
|
1955 |
66 and 2 months |
|
1956 |
66 and 4 months |
|
1957 |
66 and 6 months |
|
1958 |
66 and 8 months |
|
1959 |
66 and 10 months |
|
1960 or later |
67 |
Data source: Social Security Administration.
Now, let's say you decide to enroll in Medicare at age 65, which is when eligibility kicks in. You may be tempted to sign up for Social Security at the same time. That way, you can not only start collecting that money, but also avoid the hassle of having to pay your Medicare premiums, since they get deducted from Social Security payments once you begin receiving them.
But if you were born in 1960 or later, filing at age 65 means claiming benefits two years ahead of FRA. And that means you'll reduce your benefits by about 13.34% if you go that route.
In fact, the earliest age you can claim Social Security is 62. But if you file at age 62 with a FRA of 67, your benefits will suffer a 30% hit.
And to be clear, that reduction is a permanent one. When you file for Social Security early, your benefits don't magically get bumped up to a higher amount once you reach FRA. Rather, in exchange for getting your money sooner, you get less of it on a permanent basis.
Commit that number to memory
Knowing your FRA could help you make the most of the Social Security income you're entitled to. Imagine you're coming into retirement without much in the way of savings. In that case, you might want a higher Social Security paycheck to make up for that.
For each year you delay your filing beyond FRA, up until age 70, your benefits will grow by 8%. This means that if your FRA is 67, filing at 70 will result in a 24% boost to your Social Security paychecks.
But knowing your FRA is pivotal to making that decision. And so it's important that you commit that number to memory in the course of your retirement planning. It may influence not only your Social Security strategy, but your retirement strategy as a whole.
