Social security benefits are an integral part of millions of seniors. According to a 2022 survey from the Transamerica Center for Retirement Studies, about a quarter of workers expect their monthly checks to be their main source of income after retirement.
While the Social Security program can be complex and confusing at times, understanding how your benefits are calculated will make it easier to earn as much as possible each month. And there is one common mistake that the majority of employees make that can cost you your pension.
What is your full retirement age?
About 87% of workers cannot correctly name their full retirement age (FRA), according to a 2022 report from the Nationwide Retirement Institute. The most common estimate among baby boomers was 63 years old — which is much younger than the actual figure.
Your FRA is the age at which you receive the full benefit amount that you are entitled to based on your career earnings. If you apply for a benefit before that age (from age 62), you will receive a reduced benefit amount. By waiting a few years before claiming (up to age 70), you will receive your full payout plus a bonus every month.
Those born in 1960 or later will have an FRA of 67 years old, while anyone born before 1960 will have an FRA of 66 or 66 and a certain number of months depending on your exact year of birth.
The Risks of Not Knowing Your Correct FRA
While it may not seem too problematic to misjudge your FRA in a few years, it can potentially be a costly mistake.
Claiming early will reduce your checks, potentially by hundreds of dollars a month. If you don’t know your real FRA, you may inadvertently claim early without realizing how much it affects your monthly payments.
For example, say your real FRA is 67 years old and your full benefit is about $1,600 a month — which is about the average benefit among retirees. Let’s also say you mistakenly believe that your FRA is 63 years old.
If you started claiming at age 63, you might expect to receive your full benefit of $1,600 per month. In reality, however, you are claiming four years early. That will permanently reduce your benefits by 25%, or $400 per month in this scenario.
How to maximize your Social Security benefits
Simply knowing your correct FRA can go a long way towards maximizing your monthly checks because you can be sure that you will receive the amount you expect.
Keep in mind that you don’t necessarily need to apply for benefits at that age and there are legitimate reasons to consider early or deferred payment. But when you know your FRA, you can more accurately determine how your benefits will be affected based on when you claim.
Knowing how much you will receive from Social Security will also make it easier to plan and budget for your retirement. Your benefits can be a significant part of your income, and the more you know about how the program works, the better prepared you are.