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About to Take Social Security? Read This First

By Selena Maranjian – Jan 21, 2017 at 8:23AM

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If you want to make the most of your Social Security benefits and maximize that critical retirement income, here are some considerations that can improve your financial future.

If you've worked enough, you've probably got Social Security benefits coming your way -- and "enough" is generally about 10 years. Before you start collecting those benefits, though, learn a little more about Social Security so that you can make the most of the system. Here are some key things to know about your Social Security benefits.

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Know how much you can expect from your Social Security benefits

If you don't know what to expect from Social Security, it will make any retirement planning rather difficult -- or inaccurate. You can get a good idea of how much you can expect to receive in retirement from Social Security at the Social Security website.

For context, know that the average monthly retirement benefit was recently about $1,355, which totals $16,260 per year. If your earnings have been above average, though, you'll collect more than that -- up to the maximum monthly Social Security benefit for those retiring at their full retirement age, which was recently$2,639. (That's about $32,000 for the whole year.)

Once you know what to expect, ask yourself whether it will be enough -- because you can adjust the amount up and down in a number of ways.

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Decide when you should start collecting Social Security

Everyone has a normal or "full" retirement age in the eyes of the Social Security Administration -- of 65, 66, or 67. For those born in 1937 or earlier, it's 65, and for those born in 1960 or later, it's 67. For those born between 1937 and 1960, it's somewhere in between. You don't have to start collecting at your full retirement age, though. You can start receiving benefits as early as age 62 and as late as age 70.

For every year beyond your full retirement age that you delay starting to receive benefits, you'll increase their value by about 8% -- until age 70. So delaying from age 67 to 70 can leave you with checks about 24% fatter. Retire early, and your benefits may be up to about 30% smaller. Delaying until age 70 might seem like the best thing to do, but it's not as powerful as it seems -- because as the Social Security Administration has explained, "If you live to the average life expectancy for someone your age, you will receive about the same amount in lifetime benefits no matter whether you choose to start receiving benefits at age 62, full retirement age, age 70 or any age in between." After all, delaying starting to collect from age 67 to age 70 means you'll miss out on three years' worth of payments -- that's 36 payments.

So if you're not in good health or have many relatives who died young, starting at age 62 is probably best. (It's a reasonable time to start collecting checks for most of us, actually.) If you can afford to wait and you stand a good chance of living a longer-than-average life, delaying can be worthwhile.

Image source: Getty Images.

Know how to increase your benefit checks

There are other roads to fatter checks. For example, the formula used to calculate your benefits is based on the income you earned in your 35 highest-earning working years. So if you have only 31 years of work when you retire, the formula will be plugging in four zeros for four years. That's not ideal. You can fatten your benefit checks by being sure to have the full 35 years of earnings. Meanwhile, the greater those earnings are, the bigger your Social Security checks will be. So it can pay off to boost your earnings as much as possible, perhaps via a temporary part-time job, by seeking raises more aggressively, or even by changing jobs. If you have 35 years but some of them feature paltry earnings, you might consider working an extra year or two at a good income in order to replace some weak years.

Think twice if you're still working

You may not want to start collecting Social Security early or even at your full retirement age -- if you're still working. That's because your Social Security benefit payments may end up taxed. That happens if your income over a year features not only Social Security benefits but also significant sums from sources such as wages, self-employment income, interest, or dividend income. You will never be taxed on more than 85% of your Social Security benefits, and if the benefits make up all or vast majority of your income, you probably won't be taxed on them at all.

So depending on how much income you're receiving, you might not want to start Social Security just yet. Remember -- delaying it will also let your benefits grow.

Image source: Getty Images.

Coordinate with your spouse

Married couples have more options when it comes to collecting Social Security benefits than single individuals do, so if you're married, be sure to agree on a joint strategy with your spouse. This can be especially valuable if there's a great disparity in the earnings history of the two partners or perhaps if there's a great difference in ages.

For example, if two spouses are collecting benefits and one dies, the surviving spouse can collect the higher of the two benefit amounts. Thus, it can be smart for at least one spouse -- ideally the one who has been the bigger earner -- to delay collecting benefits in order to increase the size of their eventual checks. This can be particularly powerful if one spouse earned a lot less in his or her working life than the other.

Meanwhile, many spouses are eligible for a spousal benefit, which can be as much as 50% of their partner's benefit. If you qualify for a spousal benefit, you can collect it while delaying starting your own benefits -- in order to let those grow. Also, if you're divorced from someone you were married to for at least 10 years, you may be able to receive benefits based on your former spouse's earnings.

The majority of elderly beneficiaries get 50% or more of their income from Social Security, and many get 90% or more from it. It's likely to play a large role in your financial future, too, so learn more about making the most of Social Security before you start collecting benefits.

Longtime Fool specialist Selena Maranjian, whom you can follow on Twitter, owns no shares of any company mentioned in this article. The Motley Fool has a disclosure policy.

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