Quick Read
Social Security calculates benefits using your highest-earning 35 years, counting $0 for any missing years, which can slash your monthly check significantly.
Working extra years near retirement can replace low-earning early years in your 35-year calculation, boosting your lifetime Social Security benefit.
Married retirees with short work histories can claim spousal benefits worth up to 50% of their spouse’s primary insurance amount instead.
Many financial professionals are salespeople paid on what they push, not whether you end up wealthier. A fiduciary is the opposite. The SEC legally requires them to put your interests first. Advisor.com’s free matching tool pairs you with vetted fiduciaries from major national firms, all in under three minutes. See who you match with today.
For many retirees, Social Security benefits are an important income source, so it makes good sense to try to maximize the benefits that you collect. Unfortunately, if you don’t understand the rules about how Social Security works, you could end up costing yourself money.Â
In particular, there are a few rules that many seniors don’t know about that could cause them to lose a substantial amount of potential benefits during retirement. Understanding how these rules work can ensure you avoid these expensive mistakes and get more of the money you need for your later years.
Make sure you’re aware of this little-known Social Security rule
One of the main rules that retirees often are not aware of is that their benefits are calculated based on their highest-earning 35 years (after adjusting for wage growth). And the formula always takes 35 years of earnings into account, no matter how long you have worked.
Are You Ready To Retire, Or Years Behind?
Most Americans suspect they’re behind on retirement and never find out. Advisor.com’s free matching tool pairs you in about three minutes with a vetted fiduciary advisor who can help you with investing, taxes, retirement, estate planning, and more. No minimums. No sales call. Find out where you stand.
Unfortunately, if you are not aware of this rule and you assume Social Security just gives you benefits equal to around 40% of your average wages for however long your career is, this could influence your decision about how long you must work before you claim benefits. The reality is that if you do not have a full 35 years of work history under your belt, your benefits may be a lot smaller. You could cost yourself thousands over the course of your retirement as your benefits are calculated with years of $0 wages factored in.Â
On the flip side, though, if you understand this rule, you can use it to your advantage. Say, for example, that you are working and earning a lot of money when you’re getting near retirement age because you have moved up the corporate ladder. If you have some early years on your work history where you earned much less that are currently part of the 35 years that count toward determining your benefit, you can opt to continue working for an extra few years to replace those low-earning years with higher-earning years at your current salary.
What if you don’t have 35 years of work history?
PeopleImages / Shutterstock.com
So, what should you do if you don’t have a 35-year work history? As long as you have earned your required number of work credits (which is 40 credits), you can still qualify for benefits. However, you should expect that your benefits will be smaller.
If you are close to the 35-year mark, you should also aim to keep working if at all possible. The more years that you are short, the bigger the impact on your benefit because the more years of $0 wages that will be factored in. You can also look into whether you may qualify for spousal benefits if you are married. You can get up to 50% of your spouse’s primary insurance amount in the form of spousal benefits, and this may provide you with a higher income than your own retirement benefits would if you don’t have a long career history.
The important thing is to know and be aware of the rules and to ensure you are making the best and most informed choices about your career path, retirement date, and benefits claim with full knowledge of how your decisions will affect your Social Security checks.Â
Are You Ready To Retire, Or Years Behind?
Most Americans have no idea where they actually stand. Most guess, or hope Social Security and a 401(k) will work out. Advisor.com’s new matching tool gives you a real answer, free.
They pair you with a fiduciary (required by law to put YOUR interest first) with questions related to taxes, estate planning, retirement, insurance analysis, and more. See you who you match with today, and get the answers you need.
Contact editorial@247wallst.com for any questions or corrections.
