12 Things You Should Know to Make the Most of Your Social Security Benefits
Knowing when to retire and claim your social security benefits can make a huge difference as far as how much money you will receive each month once you’re retired. There are many rules and they can seem complicated or confusing. Here are 12 Social Security basics everyone should know before they retire:
Basic #1: Know your full retirement age! This is the age when you can start receiving your full retirement benefit amount. If you were born between 1943 and 1954, that age is 66. If you were born between 1955 and 1959, your retirement age is climbing to 67. And if you were born in 1960 or later, the age is 67.
Basic #2: Social Security is earned through “credits.” You can earn up to 4 credits per year. Anyone born in 1929 or later needs 40 credits to be eligible for retirement benefits. So, you need to work for at least 10 years to earn Social Security. For this year, 2021, you must earn $1,470 to get one Social Security work credit, and $5,880 to get the maximum four credits for the year. Each year the amount of earnings needed for credits increases slightly as average earnings levels increase.
Basic #3: Your Social Security benefits are based on the 35 calendar years in which your income was the highest. If you have fewer than 35 years of earnings, each year with no earnings will be entered as “zero.” You can increase your Social Security benefit at any time (even via part-time work during retirement) by replacing a “zero” or low-income year with a higher-income year.
Basic #4: Did you know there’s an annual Social Security COLA (Cost of Living Adjustment)? The government adjusts the benefits each year based on inflation. The 2022 Social Security COLA will be 5.9%. This is pretty high compared to recent years. In the last 5 years, the highest COLA was 2.8% in 2019, and the lowest was 0.3% in 2017.
Basic #5: You can start receiving Social Security benefits as early as age 62, however the benefits will be reduced. You can read more here about early retirement benefit reduction. When you delay your benefits beyond your full retirement age, they will continue to increase until age 70. There is no reason to delay claiming past age 70.
Basic #6: A spouse can take a “spousal benefit.” If you make $2,000, your spouse can claim up to $1,000 in social security spousal benefit, and vice versa. You just have to make sure you apply for your benefits first. Spousal benefits, like regular social security benefits, increase the longer you wait to claim. So if your spouse is waiting to claim, they can still bring some money in by claiming spousal benefit.
Basic #7: Children can also collect social security benefits. If the parent is retired or deceased, children up to age 18, up to age 19 if they are a full-time high school student, or children over age 18 with disabilities, are all eligible to receive up to half of their parents’ social security benefit.
For disabled children, they must have become disabled before the age of 22. The disability must also prevent them from working.
Basic #8: There are also social security survivor benefits for spouses and children. If you die before your spouse, they are eligible to receive up to 100% of your benefit, as long as they aren’t already collecting their own social security benefits. They have to choose one or the other, but not both. A widow or widower can start taking survivor benefits at age 60, but the payment will be reduced since it is taken before full retirement age. If they remarry before age 60, they will not be eligible for survivor benefits, but if they remarry after age 60, they may still be eligible.
Children under age 18 (up to age 19 if in high school full time) or who were disabled before age 22 are eligible for up to 75% of the deceased’s social security benefits.
Basic #9: You can be eligible to claim your ex-spouse’s social security benefits. If you were married for at least 10 years, are age 62 or older, and are single, you can get up to 50% of an ex-spouse’s benefit (less if you claim before full retirement age). This will not effect the amount your ex-spouse receives. Unlike a regular spousal benefit, you can still collect on this even if your ex-spouse has yet to collect, though you must have been divorced for at least 2 years.
Ex-spouses can also take a survivor benefit if their ex died after the divorce.
Basic #10: If you made a claim to your benefits early, but then decided you want to wait until full retirement age, you can withdraw your application within the first 12 months. You will have to pay back any benefits you have already received, but you will then be able to restart the benefits at the higher amount by waiting.
Basic #11: You may have to pay taxes on your social security benefits. Depending on your income, you may have to pay income tax on up to 85% of your benefits. You may also have to pay state taxes on your benefits, depending on where you live. Check here to see how/if you will be taxed when you claim social security benefits: https://taxfoundation.org/states-that-tax-social-security-benefits-2021/
Basic #12: If you claim your benefits early, it can cost you if you continue to work. Due to the social security earnings test, you will lose $1 in benefits for every $2 you earn over the earnings limit. For 2021, the earnings limit is $18,960. However, once you are past full retirement age, the earnings test no longer applies. You are free to make as much as you want with no impact on these benefits.
Social Security benefits don’t have to be confusing or complex. Having this basic information and understanding of how it works will ensure you get the most out of your social security funds. You can also check out this retirement estimator to see about how much you will get at what age you retire: https://www.ssa.gov/benefits/retirement/estimator.html
