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Read This Before You Take Social Security Benefits

By Dan Caplinger - Jun 26, 2017 at 10:43AM

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There are key things you need to understand before you claim your monthly payments from Social Security.

Social Security is the most important source of financial support for the average American retiree, and that makes it critical to be smart about when you claim Social Security benefits. Before you decide to file for Social Security, you should understand some key aspects of the program. The following topics should give you a good starting point in learning more about Social Security.

1. Know when your decision about Social Security will become permanent

One thing many people don't realize is that you can change your mind about Social Security even after you take your benefits. That safety valve gives allows to reconsider your decision to claim if things don't turn out the way you had planned. However, you have to make sure you follow the rules in order to avoid missing out on this opportunity.

The process involves obtaining and filling out Form SSA-521 from the Social Security Administration, which technically is known as withdrawing your Social Security application. You only have 12 months from the time that you applied for Social Security benefits to take advantage of the application withdrawal provision, and you can only use it once during your lifetime. Once your request is approved, you'll have to return any monthly benefits that you received since your initial filing. However, going forward, the SSA will treat you as if you hadn't filed, and any future benefits will be based on the age at which you send in your subsequent application.

Social Security cards with money.

Image source: Getty Images.

2. Find out if there's any reason to file if you haven't retired yet

There's no requirement to retire before taking Social Security, and many people seek to claim benefits at the earliest possible age of 62 while they're still working. This can ease the transition into retirement, making it more financially feasible to cut back on hours or take a lower-paying job that's more appealing.

However, the SSA will reclaim some of the benefits it pays you if your job income exceeds certain levels. For those who are younger than their full retirement age throughout the year, if you earn more than $16,920 in 2017, then you'll lose $1 in annual Social Security benefits for every $2 you earn above the threshold. Those who will hit their full retirement age during the year have a higher limit of $44,880, and the loss of benefits is $1 for every $3 above that limit.

You do get some compensation for your lost benefits. For every month of benefits you lose, you're treated as having claimed benefits a month later than you actually did. So if you earn so much that you forfeit all of your Social Security, the result in the long run is no worse than if you had simply not filed for benefits at all. For simplicity, though, it's worth looking at what you'll actually get to keep from Social Security before you make the decision to file.

3. Understand the impact that filing has on your family

Many retirees have spouses or other family members who are entitled to Social Security benefits because of their relationship. Before you claim your own retirement benefits, you should understand the implications for their benefits.

For instance, spouses and eligible children aren't allowed to take benefits based on your work record until you actually apply for and receive your own retirement benefits. In some cases, the ability to start drawing spousal and children's benefits can weigh in favor of filing for Social Security early.

On the other hand, the amount that spouses and eligible children get in survivor benefits after your death can vary in part based on when you claim benefits. If you claim early and accept lower payments, that payment reduction will apply to survivor benefits as well. Conversely, if you claim later and get higher payments, it will increase your survivors' benefits, too. That doesn't make one answer right or wrong in all cases, but it's something you have to consider in choosing when to claim your Social Security.

Claiming Social Security is a decision you can't afford to goof up. Only if you take these three factors into account can you expect to make the best choice for your particular situation.

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