Weighing the Benefits

SocialSecurity-copyDetermining your social Security benefits is an important aspect of retirement planning, especially if you plan to rely on them during your retirement years. Nine out of 10 Americans age 65 and older receive Social Security benefits, according to the Social Security Administration (SSA). The majority of recipients depend on these benefits for about half of their income.

In June 2010, the average monthly benefit for retired workers was $1,176. You can get an estimate of your benefits at the SSA website, www.ssa.gov. The Retirement Estimator calculator accesses your Social Security earnings record when you provide your name, Social Security number, date and place of birth, and mother’s maiden name.

Keep in mind that even though the estimate is based on your actual earning record, it is still only an estimate. Your actual benefit amount will be determined when your benefits begin, and will probably vary slightly from your estimate due to updates in your earnings record, inflation, and assumptions the calculator makes about your future earnings and length of employment.

Wondering how the U.S. government determines Social Security benefits? Besides how much you earn during your lifetime, the calculation is based on your full retirement age, when you retire, and whether you continue working while collecting benefits.

Full Retirement Age
Your year of birth determines your full retirement age, or the age at which you are eligible to receive your full retirement Social Security benefit. Those born in 1937 or before have a full retirement age of 65. The full retirement age increases slowly for those born after 1937: At 1960, the full retirement age hits and remains 67.

Retiring Early or Late
You don’t have to wait until your full retirement age to retire. You can retire either earlier or later, although both will affect your Social Security benefits.
You can begin collecting benefits as early as age 62—but doing so reduces your benefits by as much as 30 percent. Keep in mind that your benefit amount will not readjust once you reach full retirement age. The reduction is permanent, to compensate for drawing on Social Security for a longer period of time.

Delaying retirement increases your benefits. In addition to adding years of earnings to your Social Security record, you’ll receive a delayed retirement credit until age 70.

Working During Retirement
You can work after you begin collecting Social Security, but your benefits will be reduced $1 for every $2 you earn over the current earning limit until you reach your full retirement age. Good news, though: Once you hit your full retirement age, your benefits are recalculated, taking into account the months that benefits were withheld. Plus, you can then work as much as you want, with no earning limits.

Know Your Benefits
Take into consideration the factors that determine your Social Security benefits when you’re deciding when to retire and when to begin collecting benefits. Knowing how much you’ll receive, and when, may be a key factor in planning your retirement years.

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