If you’re planning to start collecting Social Security soon, you’ll have to wait a bit longer in 2018 to reach full retirement age (FRA).
Full retirement age is going up
The arrival of 2018 will bring with it several changes on the Social Security front.
Among the new developments, you should plan on staying on the job an additional two months before you reach your FRA this year.
Since 2005, the FRA has been 66. But as of January 1, 2017, the FRA has been on a long, slow climb.
Beginning in 2018, people born in 1956 must wait until they are 66 years and 4 months old to receive 100% of their Social Security benefit.
That pushes the full retirement age later by two months versus this year.
Those who were born in 1955 only have to wait until they are 66 years and two months to claim full benefits in 2017.
So if workers who turn 62 in 2018 opt to take benefits as soon as they can next year, they’ll get a monthly benefit that’s reduced by about 30%.
The Social Security Administration Amendments of 1983 signed by President Reagan call for the FRA to “increase by two months a year for persons reaching age 62 in 2017-22,” further noting that it “will be fixed at age 67 for those reaching age 62 after 2022.”
Here’s a chart from the Social Security Administration that lays it all out:
This slow increase in the full retirement age presents a challenge now that Americans are living longer and saving less.
Sadly, more than 56% of us have less than $1,000 saved, and half of us live paycheck to paycheck.
How to boost benefits checks before collecting Social Security
If you have some time left before you start claiming your Social Security benefits, consider the following:
Play the waiting game
In the past, it was very common to retire and take Social Security at 62. But every year you wait after 62, you have an imputed return of 8% per year on your lifetime benefit. So if you wait from 62 to 70, the amount that Social Security pays climbs dramatically. (Benefits no longer increase after 70.)
Use an online calculator to help!
AARP’s interactive calculator allows you to pop in your specifics and it will give you a decision tree to help you figure out the optimal time to take Social Security. Check it out to help yourself or a parent.
If you are looking for a more comprehensive approach to give you specifics on when it would be best to start drawing on your Social Security benefits, check out the Maximize my Social Security tool. There are different levels of analysis that you can choose, but $40 gives you access to sophisticated software that helps determine the best time to start receiving your checks. They also offer a money-back guarantee if you aren’t satisfied.
Boost your earnings today
What you get from Social Security has everything to do with your 35 highest earning years. So you might consider negotiating a raise or taking on a second job.
We can help you on the latter front. Our work from home guide has legitimate ways you can earn some extra money. None of the sites listed will make you rich, but they will help you supplement your existing income.
How can I play catch-up on my own retirement savings?
Know how much you’ll need to retire
By age 35, you should have two times your annual salary saved up for retirement, according to the latest numbers from Fidelity Investments.
Five years later, you should have three times your annual salary. And on and on, until you reach 67 when you should have 10 times your annual salary saved.
Laid out visually, the Fidelity guidelines for individuals look like this:
- By 35, save two times your gross annual salary
- By 40, save three times your gross annual salary
- By 45, save four times your gross annual salary
- By 50, save six times your gross annual salary
- By 55, save seven times your gross annual salary
- By 60, save eight times your gross annual salary
- By 67, save 10 times your gross annual salary
Make extra contributions to retirement savings if you’re over 50
If you’re coming into the savings game kind of late, you can play catch-up. You have to be 50 or over to do this, but here’s how it works:
- If you have a 401(k), 403(b), most 457 plans or the federal government’s Thrift Savings Plan, you can make an extra $6,000 contribution. (That’s on top of the existing $18,000 contribution limit for these plans.)
- For those with IRAs, your can contribute an additional $1,000, for a grand total of $6,500 in annual contributions.
Be sure to work with fee-only financial planners
If you decide to enlist the services of an advisor, be sure he or she is what’s called ‘fee only.’ That means they earn their income on an hourly or ongoing basis, not on commissions from the investments they steer you towards.
Strive to reduce debt in your life
Being debt free buys you so much freedom. And today it’s easier to become debt free than at any time in recent memory because of dirt cheap interest rates. If you’re still paying high interest rates, like on a credit card, get a lower interest card if you can qualify and transfer the balance.
Look at that box on your monthly statement and see what you’d have to pay to be debt free in three years. Then resolve to pay that each and every month. You need to budget money to pay down your debt just as you would budget for rent or a mortgage or a car payment.