Personal Finance

How to apply for Social Security the right way

Sens. Elizabeth Warren, D-Mass., left, Charles Schumer, D-N.Y., and Tammy Baldwin, D-Wis., conduct a rally on the east lawn of the Capitol to urge Mitch McConnell, R-Ky., to hold a vote on the 'Seniors and Veterans Emergency Benefits Act,' March 9, 2016. The legislation would provide a one time payment to seniors, veterans and other SSI recipients who will not get a cost-of-living adjustment this year.
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The concept is simple: Contribute while you work, then retire and collect a check until you pass away. Yet when it comes to Social Security, there remains plenty of confusion.

"Deciding when to start taking your Social Security benefits is one of the most important retirement planning decisions we face," said Ken Hevert, senior vice president of retirement at Fidelity Investments. "Social Security-related decisions can be complex, with a number of trade-offs."

Here are some simple steps to get you started.

Create an on-line account

A Social Security Administration office in San Francisco.
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If you are ready to roll, go to the Social Security website to see your monthly benefits estimates and find instructions on how to apply. Of course, you can also walk in to any Social Security office to speak to someone in person (though that might be a hike due to budget cuts that have reduced the number of field offices.)

You can check the status of your application, keep tabs on your payments and manage your benefits by setting up a personal account. (Those without a My Social Security account will get less information by way of paper statements as the Social Security Administration cuts costs.)

Know your FRA

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Keep in mind that Social Security benefits are calculated assuming you will claim at your full retirement age (FRA), which is determined by the year you were born. For example, if you were born in 1960 or later, your FRA is 67. To find out your full retirement age, use thisretirement age chart.

Heaven can wait

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Waiting to claim Social Security benefits can significantly boost your guaranteed lifetime income in retirement. You are still able to take your benefits beginning at age 62 if you choose, but you will get a much reduced rate.

If you can afford to wait until your full retirement age, your monthly Social Security income may increase by as much as 30 percent, according to Fidelity. And if you wait until age 70 to start collecting, your benefit could be 76 percent higher than the one you would receive at age 62 and 32 percent above the full retirement benefit, according to a separate report by the Center for Retirement Research at Boston College.

Use some tools

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Free online tools can help in determining when it's best for you to claim. The Social Security Administration's retirement estimator gives forecasts based on your actual earnings record. Financial Engines also offers a free Social Security planner. (Alternatively, a financial advisor can step in.)

Don't ignore your health

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Your decision on when to claim should also take into account your health, life expectancy, marital status, retirement savings and income needs.

Timing matters

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Regardless of your overall retirement plan, you still need to apply for Social Security three months before the first payment (and no more than four months before the date you want your benefits to start). Failure to do so could result in a possible income gap.