In today’s DueNorth Insight, we’re going to discuss the basics of social security. Let’s start by discussing eligibility and figuring out how your benefit is calculated. To be eligible for social security, you must earn 40 credits. You earn credits when you make money, and you pay social security tax on that money. You can earn up to 4 credits per year, meaning you can become eligible for social security in just 10 years.
Benefits are calculated using the 35 highest earning years of your career. For those who work more than 35 years, the lowest earning years are dropped from the calculation. For those who don’t work 35 years, they will have zero’s attributed to those years.
Now that we’ve covered eligibility and how the payment is derived, let’s take a look at your payment options. Benefits can commence as early as age 62. Now of course, there’s a cost to starting benefits before your full retirement age. That cost is roughly 5-7% each year. For example, if you begin benefits at age 62 when your full retirement age is 67, your total benefit will be reduced 30%.
On the other hand, you can elect to delay your social security benefit after you’ve reached full retirement age. The latest delayed credit you can earn is at age 70. Each year you wait after your full retirement age, your benefit increases roughly 8%.
In summary, determining when you take your social security should be viewed in conjunction with the rest of your financial plan. Your income sources, retirement age, and health all play an important factor in maximizing your social security. And that’s today’s DueNorth Insight.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.