Social Security is an essential income source for millions of older Americans today. Whether you’re nearing retirement age or just starting out in your career, it’s important to understand how Social Security works. It plays a significant role in the financial security of many people, especially in their retirement years. Here are three crucial things about Social Security that you may not have known but should definitely be aware of.
1. How Benefits Are Calculated
Social Security benefits are not just handed out randomly; they’re based on your lifetime earnings. Specifically, the Social Security Administration (SSA) calculates your benefits by looking at your 35 highest-paid years of work. If you worked less than 35 years, the SSA will count your missing years as zero. To make sure your earnings are fair, earlier years are adjusted for inflation.
Your filing age also impacts how much you’ll get. If you wait until you reach your full retirement age (FRA), which is 67 for anyone born after 1960, you’ll get the maximum monthly benefit based on your top 35 years of earnings. However, if you choose to start taking your benefits earlier, at age 62, the monthly amount will be reduced.
For example, if you start receiving Social Security at 62, your benefits will be less than what you would receive at 67. If you wait longer, your monthly benefits will increase. The key takeaway is that the longer you wait to start taking benefits (up until age 70), the larger your monthly payout will be.
2. How Much Your Benefits Can Grow
While taking Social Security early comes with a penalty, waiting past your full retirement age (FRA) can help increase your benefits. For every year you wait to claim benefits after reaching FRA, your monthly payout will increase by 8%. This is a significant boost, and many people who can afford to wait will benefit from it.
However, there is a catch. The SSA stops allowing these increases once you turn 70. So, even if you delay your claim past this age, there will be no additional growth in your benefits.
That said, you don’t have to claim Social Security at age 70, and you’re not automatically enrolled at that age. If you wait until then, it’s highly recommended to claim your benefits so you don’t miss out on the retirement income you’re entitled to. This extra income could be crucial in maintaining your lifestyle in retirement.
3. Social Security Checks Are No Longer a Thing
The days of receiving Social Security payments in the form of a paper check are nearly gone. Today, there are two primary ways to receive your benefits: direct deposit or the Direct Express debit card.
Direct deposit is a simple way to get your benefits directly into your bank account. Once you sign up for it, your benefits will automatically land in your account every month at the same time. This option is safe and ensures that you get your funds securely.
Another option is the Direct Express card. This card works much like a debit card. Once you’ve signed up, the SSA deposits your monthly benefits onto the card. You can use this card to make purchases or withdraw cash from ATMs. This method is also very secure, and it eliminates the risk of losing a check in the mail.
You may be wondering why Social Security no longer sends out paper checks. The answer is simple: it’s safer and more efficient. With paper checks, there’s a risk of them being lost or stolen. If someone were to steal your check, they could alter it and steal your benefits. Additionally, the delivery of physical mail can be delayed, which could cause serious problems for those who depend on their Social Security payments to cover bills and daily expenses.
By moving to direct deposit and the Direct Express card, the SSA has made it much harder for criminals to access your benefits. These electronic methods of payment are more secure, efficient, and reliable.
Why Understanding Social Security Matters
As we’ve discussed, Social Security is more than just a retirement benefit — it’s an important part of your financial future. Whether you’re planning for retirement or already receiving benefits, knowing how Social Security works and how it’s calculated can help you make better decisions for your financial well-being.
Being aware of the different ways to receive benefits, and the impact of when you choose to claim them, is essential. Delaying your claim can result in a higher monthly benefit, but waiting too long can also prevent you from claiming the funds you need.
The shift away from paper checks is another important factor. It’s not just about convenience — it’s about safety and security. With direct deposit or a Direct Express card, you can have peace of mind knowing that your Social Security benefits are secure and will reach you on time.
Disclaimer: This article has been meticulously fact-checked by our team to ensure accuracy and uphold transparency. We strive to deliver trustworthy and dependable content to our readers.