If you want to be financially secure in retirement, you have to make the most of your Social Security benefits. Unfortunately, many people simply jump into taking action with retirement benefits before they really think things through, and that can end up costing thousands of dollars in lost benefits over time. More importantly, the wrong Social Security decision can take away much of the peace of mind that the program was intended to give older Americans. By learning about key aspects of the Social Security system and how it determines how much money you'll get, you'll be better able to get every penny of the benefits that you deserve.
1. Sometimes, waiting gives you more benefits -- but not always
The biggest question people ask about Social Security is when they should start claiming their benefits. Claim earlier, and you'll enjoy income sooner, but your monthly checks won't be as big. Claim later, and your checks will be larger, but you'll have to wait longer before you start receiving them.
However, there are a couple of situations that can get a bit tricky. First, the ages during which waiting gives you an advantage are different depending on the type of benefit you receive. For retirement benefits on your own work history, you can boost your monthly check by waiting as long as until age 70 before claiming. However, if you receive spousal benefits, then the window for boosting your monthly benefits is shorter. Specifically, spousal benefits max out at your full retirement age, which for current retirees is between ages 66 and 67. Most spouses who wait until age 70 are just giving up money without any positive trade-off.
Second, sometimes you can collect money and get the advantage of waiting on other benefits. For instance, survivor benefits and your own retirement benefits are treated separately for some purposes. Therefore, if your spouse passed away and you collect survivor benefits on your deceased spouse's work history, you can still choose not to take your own retirement benefits. By waiting, you can collect delayed retirement credits on your own retirement benefits that will boost their total value -- but you still get the value of receiving survivor benefits.
2. If you're still working, claiming Social Security is sometimes a waste of time
Many people claim Social Security before they retire. By doing so, some workers cut back on their schedules and ease their way into retirement. However, for some workers, provisions that let Social Security take back your benefits come as a nasty shock.
If you haven't reached full retirement age, then maximum earnings limits apply, above which Social Security can take back your benefits. In 2017, those who earn more than $16,920 lose $1 in annual benefits for every $2 you earn above the limit. Those who will reach their full retirement age during 2017 get a higher limit of $44,880, and the penalty is a smaller $1 for every $3 over the limit in earnings.
What this means is that if you have earned benefits of $1,000 per month and earn more than $40,920 in wages, then every penny of your Social Security checks will get taken back. In exchange, the Social Security Administration will treat you as if you had never claimed benefits in the first place, giving you credit for an extra year before retiring that in turn will boost your payout going forward. However, it's easier just to skip the whole issue and delay filing if the SSA is just going to take your money back anyway.
3. Not happy with Social Security? You might be able to get a do-over
One saving grace is that even if you make a mistake with Social Security, you have a period during which you can change your mind. By using a process known as withdrawing your Social Security application, you can reset the clock and then claim your benefits at a later date.
Form SSA-521 has all the details on how to do this, and filing the form with the SSA is your first step to setting things straight. If your application is granted, then you have to pay back any benefits you've already received, but at that point, you're treated as if you had never filed.
Before you take Social Security, make sure you know as much as you can about the program. That way, you won't make mistakes and will improve your chances of financial security.