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Insider's Guide to Social Security: Three Rules to Optimize Your Benefits

Delaying retirement beyond your FRA can yield additional Social Security benefits through delayed retirement credits.
Cover Image Source: Social Security | Unsplash | Photo by Towfiqu Barbhuiya
Cover Image Source: Social Security | Unsplash | Photo by Towfiqu Barbhuiya

As the primary retirement plan in the United States, Social Security plays a pivotal role in providing essential retirement income for workers, spouses, survivors, disabled individuals, and sometimes, children. However, due to its vast scope, it is also a complex program, with many of its rules often misunderstood or poorly comprehended. While the core purpose of Social Security benefits is to provide financial support to individuals facing retirement expenses, the process of claiming these benefits can be daunting. Let's explore three fundamental rules that shed light on how Social Security claims work.

Cover Image Source: Getty Images | Kevin Dietsch
 Image Source: Getty Images | Photo by Kevin Dietsch

The calculation of your monthly Social Security payout hinges on your highest-earning 35 years, with your filing age serving as a crucial determinant of the amount. Generally, working until your full retirement age, typically set at 66 or 67, can result in higher monthly payments.

This strategy allows your benefit amount to compound without premature withdrawals, ultimately increasing your monthly payment. However, opting for early retirement at age 62 may seem tempting, but it comes with a caveat: it triggers a permanent reduction in benefits, as it diverges from Full Retirement Age (FRA) rules.

While there's an earnings limit for those below full retirement age, it doesn't mean benefits are lost. In 2024, beneficiaries under full retirement age can earn up to $22,320 with no benefit reduction. Exceeding this reduces benefits by $1 for every $2 earned. However, withheld benefits increase future monthly checks upon reaching full retirement age.

Source: GettyImages  |  William Thomas Cain  Stringer
Image Source: Getty Images | Photo by William Thomas Cain Stringer

Surprisingly, delaying retirement beyond your FRA can yield additional Social Security benefits through delayed retirement credits. For each year you defer retirement past your FRA, your claim accrues extra funds, augmenting your monthly payments by 8% annually. For instance, if your FRA is 67 but you opt to wait until age 70 to retire, you could potentially receive an additional 24% added to your monthly payments.

However, it's important to note that this augmentation ceases once you reach age 70. Consequently, many individuals view age 70 as the optimal time to retire and claim benefits.

Medicare offers healthcare coverage and insurance for medical emergencies to individuals aged 65 and older. Notably, Medicare eligibility commences two years before you can apply for Social Security benefits. An intriguing aspect is that you can enroll in Medicare even if you haven't commenced receiving Social Security benefits, ensuring access to comprehensive healthcare coverage at age 65 without affecting your Social Security payments.

Pexels | Photo by Karolina Grabowska
Image Source: Pexels | Photo by Karolina Grabowska

Additionally, you have the flexibility to initiate Medicare enrollment after commencing Social Security benefits, as Medicare eligibility begins at age 62. This flexibility allows individuals to tailor their healthcare and retirement strategies according to their unique circumstances.

Ensure your Social Security filing choice doesn't adversely affect your retirement funds in the long term. Familiarize yourself with the regulations beforehand to avoid potential regrets about your claiming decision later on.