Most Americans know about the retirement benefits offered by Social Security, but there is a lot more to the program than meets the eye. For example, did you know that Social Security has a built-in form of "life insurance" that could take care of your loved ones if you die prematurely? Or, did you know that there are several strategies you can use to maximize your benefits?
Here are five features of Social Security you may not know about that could come in handy.
Selena Maranjian: One feature of Social Security that not everyone knows about -- or knows enough about -- is disability insurance. That's right -- you can buy disability insurance on your own, and you can often get it through your employer, but Social Security offers disability insurance, too, through two programs.
As the Social Security Administration (SSA) explains, "Social Security Disability Insurance pays benefits to you and certain members of your family if you are 'insured,' meaning that you worked long enough and paid Social Security taxes. Supplemental Security Income pays benefits based on financial need." If you think you might benefit from one of the programs, it's best to apply as soon as possible -- at a SSA office or online -- as it can take a long time to get a decision and start receiving benefits.
A key thing to know about Social Security's disability benefits is that they're offered only to those with total disabilities, not partial ones or temporary ones. (Thus, private insurance can play a critical role in protecting you more fully.) The SSA considers you disabled if you can't do the same job that you did before, if it believes that you cannot adjust to other work because of your medical condition, and if your disability is long term, lasting a year or more, or probably resulting in death.
Meanwhile, here's a bit of bad news: The trust fund for Social Security disability insurance is on track to be depleted in 2016. That doesn't mean all benefits will cease to be available, but it does mean recipients may suddenly receive 81% of what they were scheduled to get, as that's all the program's income will be able to provide. This situation can be remedied in various ways, though, such as combining the trust fund with the overall Social Security retirement trust fund, which is also shrinking but has a longer lifespan. So, while it's good to be aware of the situation, you don't necessarily have to panic.
Matt Frankel: One Social Security feature that many people are unfamiliar with is survivors benefits, which basically act as life insurance to ease financial burdens experienced by families after an income earner dies prematurely.
You can determine whether or not you qualify for survivors benefits by registering at www.ssa.gov and viewing your latest Social Security statement. If you qualify, certain surviving relatives could be eligible to claim survivors' benefits based on your work record in the event of your death. And, the amount of survivors' benefits depends on the person's age, relation to the deceased, and the monthly benefit the deceased would have received if he or she had lived until full retirement age. For example:
- A widow/widower could be eligible for up to 100% of the deceased's monthly benefit amount depending on his/her age and whether or not he cares for the deceased's children.
- A child of the deceased could receive 75% of the calculated benefit amount until she turns 18, or 19 if still in high school.
- A dependent parent of the deceased could receive 82.5% of the benefit amount if one dependent parent survives, or 75% (each) for both parents.
There are several other situations that warrant survivors benefits, and the amount can be substantial, so it's definitely worth investigating. For example, if I'm set to receive $2,000 per month at full retirement age, my newborn child could receive 75% of that amount every month for the next 18 years -- a total of $324,000, not including the annual cost-of-living adjustments. This should definitely be taken into account when planning your life insurance needs; here's a more thorough description of this potentially valuable Social Security benefit.
Sean Williams: One of the least-known oddities about the Social Security program is that it has a built-in do-over clause. In the financial world, there isn't a "do-over" button we can press, but for your Social Security benefits, you always have Form 521 in your back pocket -- at least for the first 12 months after you file to begin taking benefits.
What is SSA Form 521? It's a request for withdrawal of application that essentially states you've decided to forgo receiving your Social Security benefits for the time being. What's required is for you (and potentially your spouse) to pay back every cent you've received from the Social Security program between the time you filed for benefits and the moment you submit Form 521. As noted above, this has to be done within 12 months or less of filing for your benefits. If you pay back every cent, then your Social Security filing claim is "undone," and your benefits can continue to grow at a rate of 8% per year until you again file for benefits.
Why would someone do this? Primarily it's because they discover they have other means of generating income and would prefer to wait on claiming their Social Security benefits in favor of a higher monthly payment later. Some seniors may go back to work in order to cover their expenses, while others may simply fall back on their retirement and other savings accounts. Whatever the reason, this do-over allows seniors to correct whatever regrets they may have about filing for benefits at an early age.
Dan Caplinger: One thing that comes as a surprise to many people is that divorced spouses can often claim Social Security benefits based on their ex-spouse's work history. These benefits are available regardless of any divorce settlement, and you don't need your ex-spouse's permission to claim them. Potential payments include both spousal benefits if your ex-spouse is still alive, as well as survivor benefits after your ex-spouse's death.
In order to qualify, you need to have been married for at least 10 years. Also, if you've remarried, then you aren't eligible to claim benefits based on an ex-spouse's work history -- you're limited to benefits from your current spouse.
What shocks many divorced spouses is that it doesn't matter how many people claim benefits on your ex-spouse's work history, or whether your ex-spouse remarried. You can still get the benefits you're entitled to receive. Furthermore, divorced spousal benefits are available even if your ex-spouse hasn't yet filed for his or her own retirement benefits, as long as your ex is at least 62 years old. That's an exception to the usual rule, in which those who are still married can only claim spousal benefits once their spouse files for regular retirement benefits.
All told, benefits for divorced spouses can play a huge role in providing much-needed financial support in retirement. If you qualify, you shouldn't miss out.
Jason Hall: The "file and suspend" strategy is a tool many married couples can benefit from, especially if one spouse is ready to retire, while the other intends to work past full retirement age for Social Security.
For example, if your retirement benefit at full retirement age was $2,000 per month, and you used "file and suspend," your spouse (if they were also at full retirement age) would be able to collect a $1,000 per month spouse's benefit.
What's the benefit? If you (or your spouse) plan to continue working past full retirement age, using "file and suspend" not only lets your spouse claim the spouse's benefit, but it will allow your benefit to continue increasing until you direct the Social Security Administration to reinstate your benefits.
If you were to file and suspend your benefits at 66 -- the current full retirement age for Social Security -- but continue working until age 70, the $2,000 per month benefit used in the example above would increase to more than $2,700. At the same time, your spouse would be able to draw up to $48,000 in spouse's benefits.
If you want to look more closely at this option, schedule an appointment with your local Social Security office. They can examine you and your spouse's actual benefits and help you determine if it makes sense.
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