Most retirees rely on Social Security payments for consistent income and to meet the pressure of inflation. This reliability provides a foundation for retirement earnings, but for many, it is the sole source of income in their later years.
The average monthly Social Security retirement check is $1,907 as of January 2024, and one in four retirees rely on Social Security for 90% of their income. At a time when groceries and housing expenses are at a record high, it’s unlikely the average social security payment will cover monthly costs averaging over $4,000.
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Experts recommend that you plan to spend between 55% and 80% of your annual working income during retirement. Ensuring you have enough money to cover your expenses is crucial to happiness and fighting longevity risk (the risk that you live for longer than is currently expected) during your golden years.
Your monthly Social Security check is based on two key factors: lifetime income and age. The age at which you decide to start collecting Social Security benefits dramatically impacts your monthly income and the lifestyle you can maintain.
Here’s how to determine the best age to claim retirement benefits.
Have at least 35 working years under your belt
The formula used by the Social Security Administration to calculate social security payments relies on the number of years the worker has been employed full time. Eligible benefits are automatically lowered if a retiree has accrued less than 35 working years.
However, you and your employer must pay into the Social Security system for 35 years. A major requirement for cashing in on benefits is having contributed to the system for decades.
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Inflation is another key factor; although it has cooled considerably from 9.1% in June 2022 to 2.5% in August 2024, prices on many goods and services have risen 20% over the last four years. As experts note, once prices rise, they don’t generally go back down.
Purchasing stable investments, such as annuities, that offer guaranteed monthly payments can help supplement monthly retirement income.
A retired couple is seen.
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Delay Social Security benefits for as long as you can
Although expectations for the amount needed to retire comfortably have increased over 50% since 2020, retirement savings are not keeping pace with inflation and expectations. The average retirement account balance increased less than $1,000 from $87,500 to $88,400 since 2020.
While you can start claiming Social Security benefits at 62, financial planning experts recommend you continue working as long as you can to maximize your 401(k) savings and Social Security benefits.
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The Social Security Administration encourages delaying benefits, as they deduct from the stipend if you claim between 62 and full retirement age, which is 67 if you were born after 1960. Therefore, the difference between claiming benefits at 62 and 70 could be dramatic and drastically change your retirement experience.
Retirees claiming benefits at 62 would only receive 70% of their eligible benefits, and that amount gradually increases to full benefits if you claim benefits up until 67.
Retirees delaying benefits until after 67 are given Delayed Retirement Credits, which increase annual payments by 8% for each year your delay benefits up until 70. Therefore, someone who collects Social Security at 62 would only receive 70% of their benefit, while someone who waits until 70 would receive 124% of their benefit.
Most financial advisors recommend delaying retirement, as it allows workers 50 and older more time to maximize catch-up 401(k) and IRA contributions and recoup any losses to investment portfolios from market volatility.
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