Are you planning to begin your Social Security benefits in 2021? It's important to think about the long-term consequences of your decision before taking action.
As you can see, the way you file your claim can have a significant impact on the amount of benefit you get. It's hard to reverse a decision, and you don't want to be left regretting your decision if it turns out you should have claimed it later on.
So, how to make sure that 2021 is the year for you? The following signs will tell you whether it’s the right time to file for your benefits.
1. You are aware of how your decision can affect the benefit amount
The way you claim your checks will impact the amount of income you get in retirement in two ways:
• It can have an impact on the average salary you receive throughout your career.
• It may have an impact on whether you get deferred retirement credits or face early filing penalties.
When you retire at your full retirement age (FRA), you will get a standard benefit that’s equal to a percentage of the average earnings for the 35 years you made the most money (with wages adjusted for inflation).
If you retire before completing 35 years of work, your average wages will be lower because you will have no earnings in several of the years included in the average.
Sticking it out a few more years, on the other hand, raises average income since higher-earning years replace lower-earning ones in the estimation if your pay is higher than at earlier points (even when adjusted for inflation).
Benefits are often affected by your age because receiving benefits before reaching full retirement age decreases your standard benefit by a small percentage every month. While claiming after reaching full retirement age raises your standard benefit by a small amount every month until you reach seventy.
Once you get how the benefits formula functions, you can calculate how claiming in 2021 will impact your monthly income based on your current age and job history.
2. You understand the role Social Security has in your retirement
If you intend to retire this year and expect Social Security to support you, 2021 is not the year to claim your benefits. That's because quitting your job without additional savings would doom you to a life of financial stress.
See, Social Security is only meant to provide a portion of your retirement income, replacing around 40% of your pre-retirement earnings. That's not enough to stop a significant decrease in quality of life, so you'll need to save money to supplement your benefits.
If you're already in your 60s, it might not seem feasible to do that, but you'd be shocked at how much money you can save if you get serious about it and remain in the workforce for a little longer than you planned.
3. You are familiar with the rules for having a job while getting benefits
If you want to work while receiving your benefits, you should be aware that you will not be able to retain both your salary and your full Social Security check if you do so.
That isn't a problem if you've already hit full retirement age; you can work as long as you want with no consequences. If you're under FRA, though, and you have an income that’s too high, you risk losing a chunk of your monthly retirement payout.
While the Social Security Administration can recalculate your benefits at FRA to account for the forfeited funds and provide you with bigger checks later, this won't help you if you're missing out on whole checks now that you were relying on to supplement your income.
Making sure you understand how benefits are determined, how much income they'll generate, and the guidelines on how much you can work can help you avoid a financial shock once your Social Security checks begin.
After you've answered these questions, hopefully, you'll realize that 2021 is your year. But if you don't, it's best to know before claiming benefits and regretting your decision.
