Social Security provides one of the highest expected retirement incomes for most American workers – a pot of gold at the end of their professional life. But many of the people who depend on Social Security income also misunderstand this, and this ignorance can prove costly. Here are five common mistakes people make when thinking about social security and why they should be avoided.
1. All elders receive the same benefit
40% of working adults believe that everyone receives the same amount from retirement social security. Instead, the benefit payment is tied to your earnings and the amount you contributed to Social Security taxes during your working years.
The Social Security Administration uses beneficiaries’ average monthly earnings over the years to calculate the dollar amount each person will receive at full retirement age. Social Security assumes that workers who have earned the most during their careers will need less help in retirement. The more you earn before you retire, the lower the percentage of that income that Social Security will replace later.
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2. Even if you request them in advance, your benefits will increase by the age of full retirement
You can start collecting Social Security at the age of 62, but it is not necessary. The age of full Social Security retirement, after which benefits are automatically started, varies according to the year of birth: 66 for those born after 1943, progressively rising to 67 for those born after 1960 on.
If you start collecting your benefit before full retirement age, your monthly allowance is reduced by nearly 30%, permanently, as Social Security will distribute the same total pool of benefits that you are entitled to, based on a life expectancy of 78.6 years – over more checks and a longer period of time. If you live longer, waiting until full retirement age will give you larger allowances for the rest of your life than you would receive by applying for benefits first.
3. Annual COLA is guaranteed
The annual cost of living adjustment, or COLA, uses a subset of the consumer price index known as the CPI-W to increase social security benefits to offset inflation.
But according to the Social Security Act, benefits only increase if the average CPI-W in the third quarter of this year is higher than its counterpart from a year ago. Some years see no increase in inflation benefits, but only because inflation itself did not increase over that period.
4. It is always best to apply for social security as soon as possible.
There is no one-size-fits-all answer to this crucial question! If you show up early, you’ll have extra money to travel and spend time doing the things you love to do when you’re younger. You may also simply need money or live with health conditions that make you think you will probably not reach your full retirement age.
But if you are in average to excellent health, with an above average life expectancy, you can earn more by waiting. If you plan to work before you reach retirement age, this can reduce your benefit. (Read more about that below.) And if your life’s earnings exceed those of your spouse, waiting longer can provide them with a higher marital benefit as well.
5. Once I have started social security benefits, I can no longer work
You Power keep working, with some caveats. In 2022, people under the age of full retirement can earn up to $ 19,560 without penalties. Your benefit is reduced by $ 1 for every $ 2 you earn over that amount. The earning limit increases with your age, and starting the month you reach full retirement age, there is no limit to how much you can earn and continue to receive all benefits.
In case you regret the permanent reduction in benefits that results from the early application, or if you are returning to work with a higher salary, or you are simply bored, you can reverse your decision, as long as you have started receiving Social Security benefits less than 12 months ago. Once in a lifetime, Social Security grants you a change of course; you can withdraw your benefit application, refund all the money you have received and re-apply at a later time.
Social security is a complex topic due to all the variables that come into play, mixed with the unique situation of individuals. Please do your research carefully and speak with your local social security office before making any important decisions.
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