Americans rely on Social Security, and it's important to make the most of the program. To do so, it's critical to think about certain key issues before you file for benefits. Otherwise, you can miss out on opportunities that will make your retired life more financially secure. The following questions will get you moving on the right path to consider whether you're ready for Social Security.
1. Do you understand how the age at which you file will affect your monthly benefits?
You can file for Social Security retirement benefits as early as age 62 or as late as age 70, and the timing of when you file has a big impact on your monthly benefits. For every month before full retirement age that you claim early up to 36 months, the Social Security Administration takes away five-ninths of a percent of your benefits. So if you claim 36 months early, you'll lose 20% of your full retirement benefit. For every month beyond 36, you'll lose five-twelfths of a percent. So if your full retirement age is 66 and you claim at 62, you'll lose a total of 25%.
By contrast, if you wait past your full retirement age to claim your retirement benefits, you'll get two-thirds of a percent extra in delayed-retirement credits for every month you wait. That adds up to 8% per year, giving you the opportunity to boost what you get from Social Security even further. Note, though, that delayed-retirement credits only apply to Social Security benefits that are based on your own work record -- not to spousal benefits you may be eligible for.
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2. Do you have to wait for your spouse to get Social Security benefits?
If you're counting on spousal benefits from Social Security, then you need to understand the special rules that apply to them. The most important is that you can't claim spousal benefits until your spouse files for retirement benefits. That's an especially big problem in couples where there's an age difference, because the older spouse can reach age 62 before the younger spouse is even eligible to claim retirement benefits.
If both spouses have worked, you can always file for your own benefits. Later on, when spousal benefits kick in, you'll start getting whichever benefit is larger. But for single-earner families, the spousal benefit limitations can be a big problem.
3. Did you work as long as you could to boost your benefits?
Social Security looks at your average earnings in the 35 highest-paying years of your career, indexing prior years for inflation. If you haven't worked for at least 35 years, then Social Security just fills in the missing blanks with zeros. Therefore those who have worked less than 35 years have a chance to increase their benefit by working longer.
Extending your career can also increase your benefits if the job you have now pays better than the worst-paying job of your career. The impact won't be as large as going from zero to a higher wage, but it'll still lead to a larger benefit amount.
4. Will you lose Social Security benefits if you claim now?
The SSA has several provisions under which it can cut your Social Security benefits. First, if you claim before full retirement age and still have a job, then you can lose benefits if you earn too much money. For 2017, if you make more than $16,920 in 2017 and will be under your full retirement age all year, then you'll give up $1 in annual benefits for every $2 you make above the threshold. A higher income limit applies to those who reach full retirement age during 2017: You'll lose $1 for every $3 you make above $44,880 during the part of the year before you hit reach retirement age.
You can also lose retirement, spousal, or survivor benefits if you're also eligible for a public pension. Public employees who didn't pay into the Social Security system are subject to the Government Pension Offset and Windfall Elimination Provision, both of which can result in smaller Social Security checks. In some cases, it pays to think about the best timing to preserve your rights to your benefits.
5. Do you know how to get a do-over if you change your mind?
The decision to take Social Security is a serious one and shouldn't be made lightly. However, there is a way to undo your decision if you act quickly. Within the first 12 months after you get benefits, you can file to withdraw your Social Security application using Form SSA-521. If it's accepted, you'll then be treated as if you'd never filed.
One caveat is that if you use this strategy, you'll have to repay any Social Security benefits you've already received. Nevertheless, if you decide later that you would have been better off not filing as early as you did, then the SSA-521 provision can be useful.
Don't miss out
Many Americans simply file for Social Security at their first opportunity, but that's not smart. It pays to take time and make a truly considered choice about Social Security. That way, you'll know that you've done everything you can to get the most from the program.
