Are you getting close to retirement and itching to take your Social Security benefits? You may want to wait. The bottom line is: waiting longer to start drawing your benefits pays.
And it seems more people are clued into this fact. According to a new study by Fidelity, only 3 in 10 retirees plan on taking their benefits when they turn 62, the earliest you’re eligible to apply for Social Security. Compare that to 2008, when almost half of retirees planned to start taking benefits at 62, according to Fidelity.
More people are holding off on taking their benefits. They’re either waiting to reach their full retirement age, when you can receive your full Social Security payout; or by continuing to work to save more.
But one thing hasn’t changed: The difficulty of understanding the basics of Social Security. Fidelity’s study found people lacked some basic understanding about things like their full retirement age, how much their benefits would be, and how much notice you need to give before you receive your benefits. Yahoo Finance talked to people about their own plans for retirement, and tried to bust some basic misconceptions about the program.
#1: Knowing your full retirement age (FRA)
Your FRA is the age you’re eligible to start collecting full Social Security benefits. Start before that, and you’ll get less money each month. For people born between 1943 and 1954, your FRA is 66. For those born in 1960 and later – you’ll have to wait until 67. Fidelity found that only 26% of people surveyed knew their full retirement age.
For people who do know their FRA, waiting those few extra years made a difference. As an example, someone who is 62, with a FRA of 66, can get 33% more in Social Security benefits if she waits until age 66 to start collecting rather than at 62.
“I worked minimum paying jobs most of my life and I didn’t have enough money to retire,” said Gail Bilto, a retiree. “We started to ask, when are you going to take full retirement? The advice we got from everyone was, OK, don’t retire when you’re 62 but wait until you’re 66 or 67 and I’m happy I did that.”
#2: Giving advance notice
Whether you start taking benefits at 62 or wait longer, don’t expect a check in your mailbox right away. When you’re ready to receive Social Security, you need to give three-months notice. According to the survey, 60% of people were unaware they needed to apply in advance, and 9% thought Social Security would contact them when they became eligible.
Whenever you decide to retire, do your research.
“I’m educating myself as we speak, but I’ve done a lot of work with my financial advisor,” said Vicki Garavuso, a professor who plans on retiring in the next several years. “Do as much research as you possibly can.”
#3: There are no do-overs
More than a third of those surveyed (38%) thought if they start taking benefits at 62, the amount will increase to their full benefit once they reach FRA. But once you start taking your benefits, you’re stuck with them. Your benefits will be reduced by 25%-30% from your maximum benefits if you start taking them at 62, so plan ahead and wait until you reach your FRA.
For people today, retirement isn’t what it used to be — in fact, some people Yahoo Finance spoke to planned to continue working or were currently working while collecting benefits.
“Do I plan on retiring, per se? Not really,” said David Graves, who runs a farm in Massachusetts. “I want to keep active, all the time. Retirement as we see it today is not really in the cards for me. I wouldn’t be able to survive on Social Security.”
And regardless of how big your retirement account is, being prepared for what to expect will help you make the most of both your finances, and this new chapter in your life.
“[Retirement] was flipping me out a little bit–realizing my age and looking at what I had,” said Bilto. “But I have to admit that since I retired, I really love it.”
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Here’s how to calculate your full retirement age