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Whether you are counting on Social Security to provide the bulk of your retirement income or just supplement it, there are some things everyone needs to know.
67 is the new 65
There’s an excellent chance that back when they increased the age at which you could collect full Social Security retirement benefits, you were too young to know about it, let alone care. But yes, the Big R is no longer 65, thanks to changes that gradually pushed up the full retirement age from 65 to 67 over more than two decades. For anyone born in 1960 or later, 67 is the new 65.
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Missing work and the number 35
Remember that amazing gap year you took between jobs when you traveled the world on a shoestring budget with Frommer’s $5 a Day guidebooks tucked in your backpack? Good times, right?
Well, enjoy looking at those old, yellowed photos because you may have unwittingly smashed your own thumb with a hammer when it comes to your retirement benefits. The reason is this: The SSA loves the number 35. And when it goes to calculate how much your monthly retirement benefits should be, it looks at your lifetime earnings. First, it adjusts those earnings for inflation. Then it takes your top 35 highest-earning years and uses an average indexed monthly earnings formula to come up with the benefit you will receive at your full retirement age.
So, that fun sabbatical year — or any periods of unemployment after you entered the workforce — will be counted as zeros and included in that formula, bringing down your average. If you took off a decade to raise kids and only worked 25 years, it will calculate your benefits on 25 years of earnings and 10 years of zeros.
If you don’t work 35 years for whatever reason, you will earn a lower benefit amount. And there is talk on Capitol Hill of increasing the number of years used in the benefits calculation to strengthen the program.
Here’s what you can do.
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