How much will you receive from Social Security when you claim your retirement benefits? If you don’t know, you’re not alone. According to a recent study , one in five people are guessing how much their Social Security retirement benefit will be each month.
As it turns out, your prediction might be off by quite a bit. According to a financial literacy paper , thirty percent of Americans couldn’t even guess the amount of their monthly benefit, even though most of them were less than two years away from being eligible to claim Social Security. Another working paper found that 82 percent of pre-retirees don’t understand how the age at which they claim will permanently affect the amount of money they will collect each month for the rest of their life.
Here are several reasons why you should know, not guess, your Social Security benefit amount.
- The age you start your benefits has a permanent effect on the amount of money you’ll receive. Your estimated benefit amount changes based on the age you claim. Your monthly benefit can be reduced by as much as 30 percent if you claim at the earliest possible age of 62. For example, if you expect to receive a monthly benefit of $1,000 at age 67, but claim at 62, you will only get $700 each month for life.
- It’s likely to be your largest source of income for the rest of your life. Social Security is particularly important for the growing number of beneficiaries aged 80 and older for whom it accounts for 70 percent or more of their income. Also, with employer-provided pensions shrinking in popularity, your Social Security retirement benefit is likely to be your only source of lifetime income that is adjusted for inflation. Not only do many Americans overestimate their benefit amount, they may underestimate expenses in retirement. Many retirees will have increased health costs in their later years, and many carry mortgages and other debts into retirement.
- Waiting to claim your benefits can help you protect the financial security of your surviving spouse. A third of married people approaching retirement do not know how much their spouse would receive in benefits, nor do they realize how one’s decision to claim will affect the other. Timing is especially important if one spouse consistently earned more than their spouse’s benefit amount. For married couples, the longer you wait to claim your Social Security retirement benefits, the more your spouse could receive in survivor benefits if you die.
Why guess your benefit amount when you can estimate when the right time is for you to begin claiming them? Our Planning for Retirement tool will help you estimate your monthly benefit amount at different ages. You can shift back and forth between the different ages as you navigate your decision to start receiving benefits. Begin planning with our retirement tool or check out Ask CFPB for more information for older Americans.
If you’d like to learn more about some of the research we included in this blog post, take a look at our snapshot on older consumers and mortgage debt .