Options exist for retired workers who are unsatisfied with their Social Security benefit, allowing them to boost their monthly payments. Social Security serves as a crucial income stream for countless retirees, often constituting the primary source for older Americans.
Nevertheless, several adults possess misunderstandings about certain facets of the program, leading to suboptimal choices and overlooked possibilities. The Calculation of Social Security retirement benefits relies on several factors, with three being especially crucial: work history, lifetime wages, and claiming age.
Calculating Social Security Retirement Benefits
The foundation of the benefits formula is built upon work history and wages. Specifically, the earnings from the 35 highest-paid years of a worker’s career are taken into account to determine their primary insurance amount (PIA), representing the benefit they will receive if they claim Social Security at full retirement age (FRA).
Let’s address three prevalent misconceptions:
- How is the calculation of Social Security retirement benefits done?
- What is the average retirement benefit for men and women across various age groups?
- What strategies can retired workers employ to enhance their benefits even after initiating Social Security?
The age at which one claims Social Security also has a significant impact on their income. Workers become eligible for retirement benefits at age 62. However, those who begin claiming before reaching their full retirement age (FRA) will receive a reduced portion of their primary insurance amount (PIA), while those who delay claiming until after FRA will see an increase in their PIA.
As an illustration, let’s consider workers born in 1960. If they opt for retirement benefits at age 62, they will receive only 70% of their PIA. However, if they choose to delay claiming until age 70, they will receive 124% of their PIA. It’s worth noting that the delayed retirement credit ceases at age 70, making it almost never advantageous to start Social Security beyond that age.
The Mean Social Security Retirement Benefit for Males and Females
The Social Security Administration (SSA) releases a monthly report providing an overview of the average payment received by different beneficiary groups. In June 2023, over 49 million individuals received a retired worker benefit, with an average payment of $1,837.29. While this figure is valuable for monitoring general trends, a more comprehensive breakdown can offer retired workers a clearer understanding of their position relative to their peers.
Certain retired workers may question whether it is possible to enhance their benefits after commencing Social Security. The answer is affirmative, but it entails a condition: one must be willing and able to temporarily forgo receiving benefits.
Strategies to Boost Retirement Benefits After Initiating Social Security
Retired workers have the option to reverse their decision to claim Social Security within 12 months of their application’s approval, provided they repay any benefits received, including withheld amounts for Medicare premiums. To initiate this process, they must complete Form SSA-521.
Alternatively, individuals who have reached their full retirement age (FRA) can suspend their Social Security benefit at any time before turning 70. To do so, they can contact the SSA by phone, mail, or visit their local Social Security office to submit the request. The benefit payments will automatically resume at age 70, but they also have the choice to resume earlier if they wish.
In both scenarios, workers accrue delayed retirement credits, leading to an increase in their benefit by two-thirds of 1% each month (or 8% per year) until their Social Security is reinstated. The distinction lies in the timing of the delayed retirement credits accumulation: for those undoing their initial claim, the credits begin accumulating at FRA, whereas those who suspend their benefit after reaching FRA will start accumulating the month after submitting the request.