For many Americans, retirement seems out of reach. According to a report from Northwestern Mutual, 21% have no retirement savings and 33% of Baby Boomers, who are retiring now, have less than $25,000 saved up.
And while more than half of Americans believe that Social Security Benefits won’t be available when they retire, according to the survey, for many, it may be their only hope for a retirement that doesn’t require them to work at least part-time into their golden years.
Americans, of course, start paying into Social Security as soon as they earn their first paycheck through taxes.
Once workers hit the age of 62, they can start taking Social Security benefits. According to a Center on Budget and Policy Priorities report, the average Social Security payment is $1,470 a month, totaling about $17,640 a year and replacing about 38% of a worker’s past wages.
These retirement funds make a big difference in the lives of the elderly. The benefit pulls more than 10 million seniors out of poverty and, for half of retirees, provides at least 50% of their income, according to the budget and policy center report.
One trick to maximizing your Social Security benefits is determining when you’ll take them. Though you can begin drawing Social Security retirement benefits starting at age 62, the federal government encourages you to hold off by boosting your payments if you wait.
You start earning your full retirement benefits at the age of 66. Here’s how your benefits will be reduced if you start collecting Social Security earlier than that, according to the Social Security Administration:
If you’re able to wait to take benefits after you turn 66, you’ll earn more from Social Security—between 5.5% and 8%, depending on how long you hold off. But these increases end at age 70. If you still opt to delay collecting your Social Security benefits at age 70, you won’t be able to take advantage of any further boosts to your benefit.
So, what does this all mean for people gearing up for their 62nd birthday? Should they wait? Or should they start collecting now?
Stan Hinden, author of “How to Retire Happy: The 12 Most Important Decisions You Must Make Before You Retire,” recommends in an AARP column that seniors ask themselves three questions:
Let’s add in another question to the calculation: What kind of retirement would you like? Would a couple thousand more dollars make a big difference in your quality of life? Will it allow for more travel to see grandchildren, an annual beach vacation or the ability to spend your retirement years without having to count pennies after every single purchase?
Deciding when to collect your Social Security benefits will vary widely, depending on your own expenses and dreams. That’s why it’s especially important to choose wisely.
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