The Crucial Social Security Chart Every Reader Must Review

The Crucial Social Security Chart Every Reader Must Review

Social Security is an important part of the financial lives of millions of Americans. Since its inception decades ago, Social Security has provided a financial safety net that guarantees Americans some income during their golden years.

Social Security has many positive aspects, but one constant complaint I hear is how complicated it is at times. Social Security has many moving parts, and many of them can change each year. One thing I have found helpful is to cut through the noise and focus on the most important and relevant aspects.

When all is said and done, there is one Social Security chart which I consider to be the most important one you will see. It focuses on your full retirement age.

The Crucial Social Security Chart Every Reader Must Review

Data source: Mad Motley.

The role of full retirement age in Social Security

Your full retirement age is when you are eligible to receive your Primary Insurance Amount (PIA), which is essentially the amount of your standard basic monthly benefit. Your full retirement age is important because your monthly benefit is calculated based on when you apply in relation to it. Although you receive your PIA at full retirement age, you may be eligible for benefits before or after.

You can start claiming Social Security at age 62, but this will permanently reduce your monthly benefit. If you are within 36 months of your full retirement age, benefits are reduced by five-ninths of 1% per month. Any additional month reduces them by five-twelfths of 1% monthly. For people whose full retirement age is 67, this equates to a benefit reduction of 20% if you claim at 64 and 30% if you claim at 62.

For individuals receiving Social Security spousal benefits, benefits are reduced by 25/36ths of 1% each month before full retirement age, up to 36 months. Any additional month reduces them by five-twelfths of 1%. In this case, someone whose full retirement age is 67 and who claims spousal benefits at age 62 would see their monthly benefit reduced by 35%.

Alternatively, you can delay benefits beyond full retirement age, increasing them by two-thirds of 1% each month, or 8% per year, until you reach age 70. After age 70, monthly benefits are no longer increased, so there is no real use for it. delaying them further. Spousal benefits do not increase once a person reaches full retirement age.

Using your full retirement age to determine your break-even point

When you apply for Social Security benefits, it’s one of your most important retirement decisions. One method I recommend taking to determine what age is best for you is to look at your balance age. Your break-even point is where the total amount received from benefits at one age is equal to that at another.

It pays to apply for benefits early because you start receiving them sooner. It pays to delay benefits because you will receive a higher monthly amount. Finding your break-even point can help you determine whether either of these strategies is best for you.

For example, let’s say you’re torn between claiming benefits at age 67 (the full retirement age for most people) and delaying until age 70. If your PIA is $1,000 at age 67, your monthly benefit would be $1,240 at age 70. At age 80, you would have received a total of $156,000 by applying at age 67 and a total of $148,800 by applying at age 70.

In this example, your break-even point between ages 67 and 70 would be 82.5 years. At this point, the total amount received is $186,000 for both application ages. At any time before this, you would have received a higher total by claiming at 67; any time after that you would have received more by waiting until age 70.

You don’t want to make your claims decision based solely on your break-even point, but this can be an important factor to consider, along with your personal and family medical history, current financial situation and retirement goals.

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The Most Important Social Security Chart You’ve Ever Seen was originally published by The Motley Fool

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