Social Security 101, Literally

Plan your strategy know and not be surprised

For those contemplating retirement or planning your Social Security future, it's time to put back on your student cap and study up.

In this case, Andy Landis, a Seattle-based author and expert on Social Security, we're talking math class and time. He feels that it's time for Americans to do their homework rather than have any surprises in their retirement when it comes to taking Social Security.

"A little understanding of the numbers goes a long way to avoiding retirement surprises and shortfalls," Landis says.

What people need to know is that Social Security is like a pension system in that it's based on three main factors of eligibility, earnings and age, Landis says. It's just that Social Security has its own twist on each of those, he says.

There's a minimum standard to qualify for Social Security and that's 40 work credits. Since people can earn up to four work credits a year or what amounts to 10 years of work.

Just in 2015 alone, people receive one word credit for every $1,220 they earn during the year, Landis says. If you earn $4,880, you get four credits for the year.

That only applies if you pay Social Security taxes on your income, he says.

What's important in determining your monthly benefit is your lifetime of earnings, Landis says. Unlike most pensions that are based on your best five years of earnings at your job, Social Security is based on the best 35 years of work, Landis says.

And since people tend to earn the most money at the end of their careers, that's been one reason why some people work longer. The best 35 years are taken throughout your lifetime and no matter what point in your life they accumulated.

The higher the average over those 35 work years selected the more in monthly benefits you get. If you have less than 35 years, those years will be listed as zero and lower your average, he says.

Landis says people should avoid the mistake of thinking that high late-career earnings mean high Social Security. The lower earnings from earlier in life can bring that average way down.

But Landis says that even though you retire a few years early, that shouldn't drastically reduce your Social Security because a few zeroes don't impact your 35-year average much, he said.

What does impact your benefits, however, is taking Social Security at 62 instead of your full retirement age of 66 or 70.

That's where age is a big factor of when you start your payments.

If you retired at your full retirement age, you get 100 percent of your benefits. If your full retirement age is 66 and you retire at 62, you receive 75 percent of your Social Security benefit, he says.

Those who wait to take their Social Security after their full retirement age receive 132 percent of their benefit. The benefit tops out at 70 so there's no reason to delay filing after that, he says.

It's all part of your financial strategy for retirement.

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