Millions of U.S. seniors today collect benefits from Social Security. And a lot of them rely heavily on that income to pay their bills.
If you're still 20 or 30 years away from collecting Social Security, you may not feel the need to try to figure out what size monthly benefit you'll be in line for come retirement. And also, any estimate you make now may not be accurate, since you have many years of earnings ahead of you, and your income could change significantly for the better or the worse over those years.
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But if you're retiring soon -- say, within the next year or two -- then it's absolutely imperative that you make your plans with an up-to-date estimate of your future monthly benefit in hand. Without that information, you might end up finalizing lifestyle plans you really can't afford.
An important number to know
The monthly benefit you're entitled to from Social Security will hinge on just a few factors -- chief among them, your personal wage history and your filing age. Waiting until what the government defines as your full retirement age (FRA) to sign up for Social Security will mean avoiding a reduction in benefits. Filing early -- you can choose to start taking Social Security any time after you turn 62 -- will mean slashing the size of your monthly benefit checks, but getting more of them, and getting the money sooner. You also have the option to postpone taking Social Security past your FRA, which entitles you to delayed retirement credits that will permanently boost your monthly benefits by 8% for each year that you delay.
As your expected retirement date nears, you may start having to commit to different financial decisions, such as putting a deposit down on a new apartment or buying a new condo. So it's important to know what size monthly benefit you're likely to get from Social Security.
Thankfully, there's an easy way to obtain that information. Simply log onto the Social Security Administration's website (if you haven't already created a "my Social Security" account, you'll need to do so -- a process that can take a few weeks to complete) and access your most recent earnings statement. It will include an estimate of your monthly Social Security benefit at FRA, as well as at ages 62 and 70, and an adjustable bar so you can so you can see how much monthly income you'd be getting at any other age you might choose to retire.
Now, if you're 60 or older, the Social Security Administration should also be sending you paper copies of your earnings statements in the mail periodically. But it's easy to toss those accidentally. If you don't have a paper copy, go online and get that information.
If checking reveals that the monthly benefit you are in line for is smaller than what you expected, that heads-up may give you the chance to avoid locking yourself into financial commitments that may be too much for you to handle. For example, if you were planning on $2,000 a month from Social Security, but realize you're only in line for $1,800, that might sway you to sign a different lease or purchase a different home.
There's no need to be in the dark
The minutiae of the Social Security program may be somewhat confusing. But figuring out what monthly benefit you can expect in advance will be essential to your financial health in retirement. So get a handle on that number. And while you're at it, assess your savings and investments to see what sort of monthly income those assets will provide you with as well.
Ideally, Social Security won't be your only income source in retirement, though it may be your primary one. But having a good sense of what your total income will look like should help you make smarter choices in the months and years leading up to your official exit from the full-time workforce.
