8 Little-Known Social Security Facts and Benefits

Time certainly flies when you're having fun -- and much fun was to be had this year, with all three major market indexes returning well more than 20% year to date even after this past week's pullback.

To keep this joyous spirit going throughout the next two weeks leading up to Christmas, I've decided to once again count down this holiday season with my own Foolish rendition of the "12 Foolish Days of Christmas." Instead of turtle doves, French hens, and partridges invading pear trees, you'll be privy to high-growth stock ideas, game-changing innovations from a wealth of industries, unique ways to fuel your retirement account, and so on.

Over the previous four days of our Foolish holiday kickoff, we've counted down the:

Now it's time to move the countdown lower by a notch!

"On the 8th day of [Foolish] Christmas my true love gave to me ..."

Eight little-known Social Security benefits!
A good chunk of the country, especially young adults, has little to no understanding of how Social Security works beyond the capacity that it takes 6.2% out of your paycheck up to a maximum $113,700 in annual earnings. But the reality is that Social Security is an invaluable social tool designed to improve the financial well-being of both young and old Americans, whether you realize it or not. Here are eight benefits and/or facts you may not have known about Social Security that could help you become smarter about this key retirement tool.

1. You'll be paid more if you wait
"Take the money and run," or "wait patiently" is the dilemma that plagues most investors -- but it's even more crucial for a retired person who's debating whether to file for Social Security disbursement. You see, a person who chooses to wait until age 70 to take disbursements will receive, on average, 76% more than someone who choose to take distributions beginning at age 62, according to Bankrate.com. The longer you can wait up until age 70, the higher your distribution will be. 

2. Work at least 35 years if possible
It's actually pretty easy to qualify for a Social Security disbursement. All you need to do is work for 10 years and receive 40 credits. You earn a credit for each $1,160 in earnings you make each year, up to four credits. In other words, a seasonal job in which you earn $4,640 annually over 10 years is enough to qualify you for SSA retirement benefits.

However, if you really want the best retirement disbursement possible, consider that your SSA benefit check is determined by the average of your income over a 35-year period. In the case of someone who's worked more than 35 years, the SSA will average the 35 highest-income years. But if you work less than 35 years, the average for the number of years between what you worked and 35 will be replaced by zeroes! It therefore might be in your best financial interest to work a few years beyond age 62 to hit 35 income-producing years since it could have a large material impact on your retirement benefits check.

3. File and suspend benefits for qualifying spouses and children
This little-known strategy allows spouses significantly older than their husband or wife with children to file for Social Security benefits so their spouse and children can receive those benefits instead.

The logic here is that a retirement-age individual can file for Social Security benefits at age 66 and then immediately suspend his or her own benefits so that at age 70 that person can take a 32% higher distribution (distributions grow by 8% per annum if you wait) than if he or she were to begin drawing down at age 66. In return, the husband or wife of this individual can receive up to half of that spouse's eligible SS benefit, with a child receiving the other half. The child is eligible to receive this distribution up to age of 18, while the spouse can continue to receive this Social Security benefit up to when his or her child turns 16. The maximum benefit for this distribution is typically capped at between 150% and 180% of the older spouse's full benefit amount.

4. A Social Security do-over clause
There are few "mulligans" in the real world, but the Social Security Administration allows for one. Prior to 2010, the SSA allowed retired individuals to utilize form 521 to essentially unfile their benefits claim, pay back all of the benefits they received, and get a full-fledged do-over that allowed their benefits to appreciate 8% annually as if nothing had ever happened.

The SSA did change this policy in 2010 to explicitly only allow eligible retirees to access this do-over clause within the first 12 months of claiming Social Security benefits, rather than throughout the process between age 62 and 70. But it nonetheless remains an intriguing option for those who regret taking their benefits early and who could easily wait longer, allowing their benefits to grow.

5. Spousal benefits advantage
Social Security benefits can be a bit tricky for couples, but the SSA allows ample ways for married two-income couples to benefit. Instead of making each individual married person rely on his or her own income and essentially go it alone, married couples can choose to file to draw on the lower income-producing spouse's benefits early on while allowing the higher-income spouse's benefit to grow until age 70, when the payout will be 76% higher than if that spouse began withdrawing individually at age 62.

6. Stay married for at least 10 years
OK, I'm certainly not twisting anyone's arm here, but one of the unique Social Security benefits for divorcees is that they're entitled to up to half of their former spouse's benefits if they were married for 10 years or longer. What this does is give a former spouse the option of taking the greater of his or her own benefits if that income is higher, or half of the ex-spouse's if that figure is greater.

7. Deceased former spouse Social Security benefits
I really wasn't kidding when I said there are a myriad of possibilities when it comes to taking Social Security distributions for married or formerly married couples. In addition to the benefits provided as a married two-income couple, and for divorcees, spouses that are at least 60 years old and haven't remarried are eligible to collect up to half of their former spouse's Social Security benefit if the other spouse dies. This allows former spouses the option of allowing their own benefit to grow until age 70, upon which they can simply choose to take the greater of their own benefit or continue to take half of their former spouse's benefit.

8. Social Security provides for more than just retirement benefits
One of the most prevailing misconceptions among today's younger generation is that Social Security has no meaningful impact on them, other than reducing their take-home pay by 6.2% -- but that's simply not the case.

In addition to providing income benefits to retired individuals, Social Security benefits also include long-term disability income, as well as survivors' insurance protection. According to the SSA, about one in four of today's 20-year-olds will become disabled by the time they reach their retirement age and roughly 11% of all Social Security benefits are currently going to dependents of deceased workers. There's certainly more to Social Security than just retirement income!

Still have Social Security questions and concerns? We're here to help!
There's little denying that Social Security plays a key role in your financial security. In our brand-new free report, "Make Social Security Work Harder for You," our retirement experts give their insight on making the key decisions that will help ensure a more comfortable retirement for you and your family. Click here to get your free copy today.

Editor's note: A previous version of this article failed to specify that the Form 521 option is only available within the first 12 months of claiming Social Security benefit. The Fool and the author regret the error.


Read/Post Comments (5) | Recommend This Article (28)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 14, 2013, at 3:59 PM, anotherfool2 wrote:

    Under segment 1 you claim that the longer you wait to take social security, "...the higher your distribution will be". This is misleading in my opinion. It is well known that waiting from 62 to full retirement age (FTA) or better yet until you are 70 with result in higher monthly SS checks (distributions). However, what is less well known, but I believe to be a fact, is that the social security system is designed to distribute the same net amount of benefit over time regardless of when you start taking your distributions. So regardless of whether you start collecting at 62 or your FTA or at 70, if you collect those distributions until 78 years of age (I think) you will have collected the same total "distribution" regardless of what age you started collecting. Is this not true?

  • Report this Comment On December 14, 2013, at 7:06 PM, cgrover wrote:

    The "do-over" strategy is no longer available as the author describes. Benefits can be paid back only during the first 12 months.

  • Report this Comment On December 15, 2013, at 2:50 PM, rachel0619 wrote:

    I am looking at strategy #7/Deceased former spouse Social Security Benefits. Do I have to retire from current job in order to receive this benefit, or may I continue working?

  • Report this Comment On December 16, 2013, at 8:19 PM, fearandgreed2005 wrote:

    The author ignores the possibility that the future of social security is likely to involve "means testing". If you have a nice IRA balance or a nice pension then they may just decide that you can get along with reduced benefits or no benefits. I turn 62 next year and I will grab every dollar I can because the future is unpredictable.

    Also, consider that the years between 62 and 72 are likely to be better than your later years. Use the money to have some fun while you can.

  • Report this Comment On December 17, 2013, at 4:21 AM, GETRICHSLOW2 wrote:

    I agree with fearandgreed2005. Our strategy is going to be get every cent we can as soon as we can. Every month you pass up a payment is likely one you will never get.

    If someone every gets the guts to try and fix this disaster, I look for the age 62 provision to be the first thing to go.

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