Social Security seems like a simple way to get the most out of your retirement when you’re young. You’ll leave your job and start collecting benefits, and then you’ll receive a monthly check for life. However, this is not the case. Instead, you’ll need to make some critical decisions as you near retirement to maximize your income.

Determine Your Full Retirement Age

You can start collecting Social Security benefits up to a few years before your full retirement age. However, your monthly benefit will vary.

The term “full retirement age” refers to the age at which you’re entitled to receive 100% of your Social Security benefits. This is 66 for those born between 1943 and 1954, and it increases to 67 for those born in 1960 or later. Your monthly benefit will be reduced if you start taking Social Security benefits before your full retirement age.

How Benefits are Calculated

The primary insurance amount (PIA) is computed by taking into account your 35 highest years of earnings, which are then multiplied by the national average wage index. If you have fewer than that number of years of earnings, each year without any earnings will be entered as a zero. You can increase your benefit at any time by replacing a year with a higher-earning year. The maximum monthly Social Security benefit that you can receive is computed based on your age when you retire.

The Cost of Living Adjustment

One of the most useful features of Social Security is the annual cost-of-living adjustment or COLA. This is a significant benefit, as it allows you to keep up with the rising cost of living.

The size of the cost-of-living adjustment depends on the level of inflation that’s determined by the government. This is different from the consumer price index, which is used by economists and others.

Your Benefits Will Increase the Longer You Work

You can start collecting Social Security benefits at the age of 62, but this will reduce your payments by as much as 25% to 30%. If you wait until your full retirement age, you’ll receive 100% of your earnings. However, you can still get more by waiting until you reach the age of 70 when your monthly benefit will grow by 8%. Since the cost-of-living adjustment is included, you won’t lose these benefits. You should think of this period as bonus years, and remember that you’ll be hard-pressed to find similar returns on investments during that period.