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The most important Social Security table you'll ever see
Retirement planning amid coronavirus crisis
Barron’s senior writer Reshma Kapadia and Barron’s Roundtable discuss how coronavirus upended some people’s retirement plans and what can be done to make up for that lost capital.
There's little question that Social Security is our nation's most important social program. According to an April-released survey from national pollster Gallup, 89% of current retirees rely on their monthly payout to some degree to help make ends meet. Meanwhile, an all-time record 88% of nonretirees told Gallup that they expect to lean on Social Security as either a major or minor source of income during retirement.
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THE 5 MOST IMPORTANT RETIREMENT QUESTIONS
Furthermore, an analysis from the Center on Budget and Policy Priorities in 2016 found that elderly poverty levels are less than 9% with Social Security, but would be north of 40% if the program didn't exist.
Suffice it to say, Social Security benefits often play a key role in the financial well-being of our nation's retired workforce. This means there's arguably no decision more important for seniors than deciding when to begin taking their payout.
How are Social Security benefits calculated?
In total, there are more than a half-dozen factors that can affect how much a person is paid monthly from Social Security, or how much of that payout they'll be allowed to keep. But of these more than half-dozen factors, four stand head and shoulders above the rest.
The first two are inextricably linked: work history and earnings history. When the Social Security Administration (SSA) calculates a workers' monthly retirement benefit, they do so by taking into account their 35 highest-earning, inflation-adjusted years. For each year less of 35 worked, the SSA averages in $0, which will reduce the amount a worker is paid on a monthly basis.
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The third factor that influences what's paid monthly by Social Security is a person's birth year, which determines a person's full retirement age — i.e., the age at which a beneficiary can receive 100% of their monthly payout. Put simply, taking benefits prior to reaching full retirement age means accepting a permanent reduction to your monthly payout. Conversely, claiming your benefit after your full retirement age can permanently increase your monthly payout.
The fourth and final factor is claiming age. Social Security retirement benefits can begin at age 62, or any time thereafter. The catch is that monthly benefits increase by up to 8% annually, through age 69, every year an eligible retiree holds off on taking their payout.
The most important Social Security table you’ll ever see
Claiming age can absolutely have the biggest impact on what you'll receive on a monthly or lifetime basis from the Social Security program. But in order to make the smartest possible claiming decision, future beneficiaries must understand how their full retirement age and claiming age can help or hinder their Social Security income-earning capacity. That's why the following table is a must-see for all future retirees.
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