Here's What You Need to Know: Many Americans mistakenly believe that their Social Security benefits will go up automatically when they reach full retirement age.
After years upon years of pumping hard-earned money into the Social Security program, soon-to-be-retired Americans will be expecting to see thousands of dollars entering their bank accounts each and every month.
Is that the full story? Not quite, say some financial experts. According to the Motley Fool, a private financial and investing advice company, “a lot of people file for Social Security without even knowing their FRA (full retirement age) in the first place. Others don’t realize it’s possible to get a do-over if you file too early.”
It continues: “The best way to avoid making a decision you regret for years on end is to read up on how Social Security works. Understanding the program’s nuances will help you land on the best filing age based on your financial needs and life expectancy.”
However, that is easier said than done. A recent poll has revealed that the average American struggles to grasp the basic facts of Social Security benefits. According to Nationwide’s 8th Annual Social Security Consumer Survey—conducted by the Harris Poll on behalf of the Nationwide Retirement Institute—the majority of those surveyed showed confidence that they understand how to optimize their Social Security benefits. But what the data revealed was that only six percent actually understand all the factors that determine the maximum Social Security benefit an eligible individual can be on the receiving end of.
One of the biggest and potentially costly misconceptions is related to a situation in which an individual claims their benefits early. Nearly half of the respondents mistakenly believe that their Social Security benefits will go up automatically when they reach full retirement age, which is currently sixty-six and two months.
“Here’s one thing some seniors don’t realize until it’s too late—if you file for Social Security early, your full benefit won’t be restored once you reach FRA. Rather, you’ll be stuck with that lower benefit for life,” the financial site writes.
“Despite the fact that millions of seniors rely on Social Security heavily in retirement, there’s a lot of misinformation about the program. And sometimes, all it takes is a single misunderstanding to wind up with a lot less money in benefits than you may have anticipated. Such could be your reality if you wind up falling victim to this avoidable trap,” it continues.
Know the Facts
For those individuals who decide to collect Social Security at sixty-two, the earliest age to do so, the maximum amount will be $2,324, according to the Social Security Administration. But if one can wait until the full retirement age, the maximum benefit amount is $3,113. As for the absolute maximum benefits, it currently stands at $3,895—but do be aware that one must wait until age seventy to file.
“If your full retirement age is sixty-seven and you claim Social Security at sixty-two, your monthly benefit will be reduced by thirty percent—permanently. File at sixty-five and you lose 13.33 percent,” says the AARP, a U.S.-based interest group focusing on issues affecting those over the age of fifty.
Ethen Kim Lieser is a Minneapolis-based Science and Tech Editor who has held posts at Google, The Korea Herald, Lincoln Journal Star, AsianWeek and Arirang TV. Follow or contact him on LinkedIn.
This article first appeared in July 2021.
Image: REUTERS/Kevin Lamarque