What kind of pension do Americans receive: how can social security amounts be increased in the USA?

Making the most of your retirement is of utmost importance to all seniors. But to do this, you first need to understand the ins and outs of calculating your benefit, as well as the factors that determine the size of your monthly Social Security check, reports Yahoo.

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For most Americans, Social Security is an essential source of income during retirement.

According to Gallup, which has conducted research for more than two decades, up to 90% of current retirees rely on their benefits to cover at least some portion of their monthly expenses.

Four Important Factors

There are many variables that can affect what you receive from Social Security. For example, Social Security benefits may be taxed at the federal level as well as at the state level. People who filed early could see some or all of their benefits withheld due to the pension income test.

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But if you dig deeper, there are only four factors used to calculate your monthly Social Security check:

• income history;
• work history;
• full retirement age;
• acceptable age for retirement.

The first two factors—income history and work history—go hand in hand.

The Social Security Administration (SSA) considers your 35 years of highest earnings, adjusted for inflation, when calculating your monthly benefit. This means that if you earn more on average throughout your life, you'll likely receive a larger monthly check in retirement.

The third component the SSA uses to calculate your monthly Social Security benefit is your full retirement age.

At this age you become eligible to receive 100% of the pensioner's benefit and it is determined by the year you were born. Anyone born in 1960 or later, including most of today's workforce, has a full retirement age of 67.

The fourth factor that can really raise or lower your monthly Social Security benefits is your current eligibility age.

Although eligible retirees have the option to receive distributions as soon as they turn 62, the pension plan urges retirees to be patient. For each year an eligible person waits, benefits can increase by as much as 8%, starting at age 62 and continuing until age 69.

What Social Security benefits are paid at ages 62, 67, and 70?

For most retirees, their health, marital status and financial needs will be some of the key variables influencing their decision to apply for Social Security. There are three ages when you can consider benefits: 62, 67 and 70 years old.

Age 62 is the aforementioned earliest age that retirees can access their benefits. With Social Security facing a $22,4 trillion shortfall through 2097, there is the potential for steep benefit cuts for retirees who retire early.

Age 67 is a logical and popular choice for two reasons. First, this is the full retirement age for generations of future retirees. To receive 100% of the amount due, it makes sense to wait until age 67. Second, when disabled workers (those born in 1960 or after) reach full retirement age, their disability benefits automatically convert to retiree benefits.

Age 70 will require the most patience (eight years after you become eligible), but it will also result in the highest monthly payments. Life expectancy in the United States has increased markedly since the first pension benefit was paid out in January 1940.

According to data provided by the SSA:

• 565 retirees age 887 received an average Social Security check of $62 per month in December 2022
• 2 retirees age 849 received an average Social Security check of $908 per month in December 67
• 2 retirees age 955 received an average Social Security check of $215 per month in December 70

In other words, the average benefit for early claimants is 31% lower than what retirees received on average at age 67. Meanwhile, the average Social Security check at age 70 is 54% higher than at age 62.

When is the best time to retire?

According to comprehensive research, patience pays off more often than not.

A comprehensive study published in 2019 by financial planning firm United Income addressed the topic of the optimal filing age and came to a very clear conclusion.

Researchers at United Income looked at the previous claims of 20 retirees. The purpose of this study was to determine whether retirees made the “optimal” decision that would yield the highest retirement check.

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Only 8% of applications would be optimal in the aggregate for ages 62 to 64. This is a particularly unfortunate result given that most of the 20 retired workers began receiving benefits before reaching full retirement age.

In comparison, 57% of applications would be optimal at age 70. Although 67 was the second best age to apply, age 70 was about five times more advantageous in percentage terms.

This doesn't mean that early retirement won't work in certain situations (say, if you have health problems that could shorten your life expectancy). However, United Income's extensive research shows quite clearly that patience among retirees pays off far more often than not.

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