3 Critical Things About Social Security Most People Don’t Understand


June 14, 2021

By Bridgelight Financial Advisors

Social Security. We’ve heard about it, we’ve been taxed on it, and we look forward to receiving our well-earned benefits when we retire. But when you think about it, how truly knowledgeable are you on Social Security as a whole when it comes right down to it? A profound number of retirees depend on their monthly checks during their retirement years, so it’s essential that you make the absolute most of your benefits and understand factors that affect how much you make each and every month.

Your Retirement Age Will Affect Your Benefit Amount

One can start receiving Social Security benefits as early as age 62. Sounds fantastic! Right? Well, there are a lot of factors to think about when considering the age at which you retire. If you’ve made a considerable amount of money in your lifetime and know for a fact that you will not need to depend on your Social Security benefits when you retire, retiring at the age of 62 might just be what works for you. What people don’t know about Social Security is that the earlier you retire before your full retirement age (which varies depending on the year in which you were born), you can expect up to a 30% permanent reduction in monthly benefits (1). If you don’t have a solid retirement fund in place it’s important that you weigh the pros and cons of retiring early – if you delay your retirement up until age 70, you will be eligible for delayed retirement credits that would increase your monthly benefits (2). If you retire early, you’ll be receiving Social Security benefits for a longer period of time. On the other hand, in delaying your retirement you’ll be receiving more money each month. Keep in mind that claiming at your full retirement age is the only way to receive the full benefit amount you’re entitled to each month.

There Are Many Factors That Determine Your Benefit Amount

Believe it or not, 91% of workers aged 50 and older claim that they don’t know how their benefits are calculated (3). Although there’s no need for you to know every single detail that goes into your Social Security benefits, understanding the factors that affect your benefits will help you maximize your checks as much as possible. Now that we’ve noted how your full retirement age (FRA) plays a huge role in your monthly benefits it’s important that you understand what yours is when considering your retirement. You should also keep in mind how many years you’ve worked in your lifetime. Your full benefit amount, if you claim at your FRA, is based on an average of your 35 highest-earning working years (4). If you work less than 35 years your benefit amount will decrease based on the notion that there will be zeroes factored into your average. On the opposite side of this coin, if you work more than 35 years you can increase your benefits by replacing some of your lower-earning years with more recent higher-earning years. It’s beneficial for you to note that you could be eligible for other types of Social Security checks in addition to your benefit checks, such as spousal benefits or divorce benefits (3). Social Security will not notify you of these additional benefits so make sure you’re aware of these options going into retirement.

Social Security Alone Is Not Enough For You to Live On

Your Social Security benefits absolutely help out a great deal once you retire but it’s nowhere near enough for you to survive on throughout your entire retirement. This is a huge misconception amongst those nearing retirement. Having a financial advisor is a huge benefit when it comes to planning your income when you reach this point in your life. Having a financial planner will help guide you in the right direction in terms of investment planning, fixed income annuities, and much more so you can feel confident and comfortable while in your retirement years. However, that’s not to say that your Social Security benefits aren’t an important part of your financial future. When you’re aware of just how much you’ll be receiving in benefits each month, you’ll be able to determine just how much you’ll need to save to cover all of your retirement expenses. It’s very common for individuals to be unaware of just how much they’ll receive through their Social Security benefits, and we don’t want you to be one of those individuals. Luckily there’s a very simple way to find this information out. You have the ability to create a “My Social Security” account in which you can access statements online and get an estimate of how much you’ll receive in benefits based on your earnings (5). It only takes just a few minutes and it will do wonders for your retirement planning.

If you are in need of a financial advisor that specializes in helping you make your retirement a successful one, our team at Bridgelight Financial Advisors would love to help you experience confidence in every aspect of your financial plan. Call (203) 795-7080, email Advice@BridgelightAdvisors.com, or schedule an appointment online to meet and get started.

About Bill

Bill Leavitt is the president of Bridgelight Financial Advisors, an independent, privately owned fiduciary financial advisory and financial planning firm. He specializes in working with pre-retirees, retirees, professionals, and women investors, helping them navigate a complicated and ever-changing investment landscape. With over 25 years of experience, Bill serves his clients using his own unique financial planning model, The Wealth Focus™ Process, where he helps clients develop their customized long-term wealth strategy in four comprehensive steps. A Connecticut native, Bill resides in southern Connecticut with his wife, Laura, and their three daughters. To learn more about Bill, connect with him on LinkedIn.

(1) https://www.ssa.gov/benefits/retirement/planner/agereduction.html

(2) https://www.ssa.gov/benefits/retirement/planner/delayret.html

(3) https://www.usatoday.com/story/money/2019/07/01/divorced-heres-how-it-will-affect-your-social-security-benefits/39641809/

(4) https://www.aarp.org/retirement/social-security/questions-answers/social-security-benefits-calculation.html

(5) https://www.ssa.gov/myaccount/?utm_source=offsite&utm_medium=referral&utm_campaign=ocomm-eservices-fy19&utm_content=eservice

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