Thinking about claiming Social Security? Once you make that choice, you have few options for a do-over, and you could affect the amount of income your benefits provide over your lifetime.
Before you file for your benefits, there are four questions you absolutely need to get the answers to -- here's what they are.
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1. How much will my monthly benefit be?
First things first: You need to know how much Social Security income you'll actually be eligible for. You can find this out by visiting your SocialSecurity account to see an estimate of your benefit. The closer you are to retirement age, the more accurate it will be.
Checking your benefits is crucial, because many retirees are surprised by how little money they actually get. Most people's Social Security income is well below the maximum $3,895 benefit, and it isn't enough to live on without supplemental savings.
By finding out how much money you'll get from Social Security, you can make sure it's enough -- combined with income from savings and other sources -- to cover your costs.
2. How does this compare to my potential maximum benefit?
Your age when you start your benefits affects the amount of money you get. To get your maximum benefit, you'd need to wait until 70 to claim it. If you start your checks any time before then, you should see how much you're reducing your checks and make sure you're OK with that.
Here's what you need to know to do the calculation:
- If you claim benefits at full retirement age (between 66 and 2 months and 67), you get your standard benefit.
- If you claim benefits within 36 months before FRA, you're subject to an early filing penalty equal to 5/9 of 1% per month. This adds up to a 6.7% annual reduction from your standard benefit.
- If you claim more than 36 months prior to FRA, you face an additional early filing penalty of 5/12 of 1% per month. That adds up to a 5% annual reduction.
- If you claim benefits after full retirement age, you get delayed retirement credits that raise your check amount by 2/3 of 1% per month. That adds up to an 8% annual increase.
Sometimes, you may decide you're OK with getting less than the maximum benefit if you want to start your checks sooner. And you have to keep in mind that by delaying, you miss out on checks you could've received. You have to break even for those missed checks from delaying to make sense.
3. Will my spouse need to rely on survivor benefits?
If you are the higher earner in your marriage, claiming Social Security before maxing out your benefits will affect your spouse if you pass away first.
When one spouse dies, the other can keep the higher of their two benefits as a surviving spouse. If you've shrunk your benefit by claiming it early, your surviving spouse will get less income than if you'd waited to max out your monthly checks.
4. Will I be taxed on my Social Security check?
Finally, you need to know whether you'll be subject to federal or state tax, as this reduces the buying power your benefits offer you.
If your provisional income is above $25,000 as a single filer or $32,000 as a joint married filer, at least part of your benefits could be taxed. Provisional income is taxable income plus half your benefits and some non-taxable income such as MUNI bond interest. And if you live in one of the 13 states that tax benefits, you could owe your local government too.
You need to understand the answers to these questions to get a realistic assessment of what Social Security will do for you -- and how your decisions affect that. Only then can you make the best choice about when to claim your retirement benefits.
