"Once you retire, you'll ideally have multiple income streams at your disposal - savings, investments, and maybe even a part-time job. But chances are, Social Security will be a significant source of income for you in retirement. And for this reason, it's important to try to get as much money out of it as possible. One decision on your part could have a huge impact on your monthly Social Security checks. Here's what it is, and how to make the right call."
"The way the Social Security Administration calculates your monthly retirement benefits is a bit complex. In a nutshell, it takes your 35 highest years of wages into account, all the while adjusting earlier wages for inflation. Based on that, you're eligible for your monthly benefit without a reduction once you reach full retirement age, or FRA. That age is 67 for anyone born in 1960 or later."
"Let's say you're eligible for a $2,000 monthly benefit at an FRA of 67. This is roughly in line with the average monthly benefit retired workers collect today. If you file for Social Security at 62, that monthly benefit will shrink to $1,400. If you wait until age 70, it will increase to $2,480. So all told, that's a monthly difference of $1,080 in income, or a difference of $12,960 a year. That's not insignificant."
Social Security monthly retirement benefits are calculated using the 35 highest years of wages, with earlier wages adjusted for inflation. Full retirement age (FRA) provides eligibility for unreduced benefits; FRA is 67 for those born in 1960 or later. Benefits can be claimed as early as 62 with permanent reductions for each month claimed before FRA. Delaying claims past FRA increases benefits until age 70, after which increases stop. Filing age can significantly change monthly payments: an illustrative $2,000 FRA benefit drops to $1,400 at 62 and rises to $2,480 at 70, a substantial annual difference.
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