3 Social Security rules you need to know before claiming benefits

If you're gearing up to claim Social Security, you may be excited to finally get some money out of the program you've been paying into all of your life. But it's important to have a good understanding of how Social Security works before signing up to get benefits. With that in mind, here are three basic rules you should commit to memory before putting in your claim.

1. How benefits are calculated

Your monthly Social Security benefit is calculated by taking your 35 highest-paid years of earnings and adjusting them for inflation. Your filing age will also play a role in determining how much monthly income Social Security gives you.

If you're nearing the end of your career and have not yet put in 35 years in the labor force, you may want to consider working a bit longer. Doing so could replace a year of zero earnings with an actual salary, resulting in a higher ongoing monthly payday.

Similarly, you may want to consider waiting until at least full retirement age (FRA) to sign up for Social Security. That's the age at which you're eligible for your monthly benefit in full based on your income history, and it's either 66, 67, or somewhere in between.

You're allowed to file for Social Security as early as age 62. But filing ahead of FRA will mean reducing your monthly benefit for life.

2. How delayed retirement credits work

We just learned that your complete monthly Social Security benefit based on your income history is yours once you reach FRA. But there's a financial advantage to delaying your filing.

For each year you hold off on claiming Social Security past FRA, you accrue delayed retirement credits that boost your monthly benefit by 8%. So if your FRA is 67, you have the potential to raise your monthly payments by 24%.

Those credits, however, stop accruing once you turn 70. So for this reason, 70 is generally considered the latest age to sign up for Social Security, even though you technically won't be forced to claim benefits at that point.

3. How Medicare works with Social Security

Medicare eligibility begins at age 65, which could be up to two years before your FRA arrives. You should know that you can absolutely become a Medicare enrollee without signing up for Social Security. Doing so could be beneficial, in fact, since that way, you get health coverage at 65 but don't end up slashing your monthly benefit in the process.

Incidentally, you can also sign up for Social Security without becoming a Medicare enrollee. As mentioned earlier, Social Security becomes available to you once you turn 62. If you have a reason for filing early, you may decide to do so and sign up for Medicare a few years later.

Know the rules

Your Social Security filing decision could impact your retirement finances for many years to come. Read up on the rules before moving forward so you don't end up regretting your claiming decision after the fact.

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