Taking Social Security is one of the biggest financial decisions that older Americans have to make. Before you just sign up for your benefits, it pays to think about the consequences of your decision and to consider whether making a different decision makes more sense. The following five aspects of Social Security are things you should really understand before you make a decision so critical to your future.
1. Find out what you'll get from Social Security
Many people file for Social Security without even knowing how much they'll get. That's completely unnecessary, because it's easier than ever to get an up-to-date reading on what your Social Security benefits will be.
Begin by going to the Social Security Administration's website to access the SSA's my Social Security service. Once you log in, you'll be able to see exactly what your work history has been and what benefits you and your loved ones will be entitled to receive based on a number of different assumptions. That information will help you make a more informed choice about whether your benefits will be enough to meet your needs.
2. Understand when it pays to wait -- and when it doesn't
You've likely heard that you can get larger monthly checks if you wait longer to start taking them. That's true in most cases, but it depends on how old you are and which type of benefit you're claiming. For those claiming retirement benefits on their own work history, payments are reduced if taken before full retirement age, and delayed-retirement credits boost your benefit when you wait beyond full retirement age until age 70, when they max out.
However, waiting doesn't always give you bigger benefits. If you're claiming spousal benefits, then they reach their maximum when you hit full retirement age, which for those who are near retirement now is between 66 and 67. Waiting until age 70 in hopes of getting spousal benefits would be a big mistake.
Another situation in which it doesn't pay to wait is when you're eligible for your own retirement benefit and a survivor benefit. You can make decisions to claim those separately, so it often makes sense to claim one as early as possible and then replace it with the larger alternative once it maxes out.
3. Learn whether Social Security will take back some of your benefits
You might want to claim Social Security before you retire. If you do, you may be able to work less and begin a transition to full retirement. Understanding Social Security's traps for early filers is essential if you're looking at this path.
In particular, the SSA imposes a maximum earnings limit if you haven't reached full retirement age. Earn more than that amount, and the SSA will take away some of your benefits. In 2017, those who are working and taking benefits before their full retirement age will lose $1 in annual benefits for every $2 they earn above $16,920. If you hit retirement age during 2017, then a higher limit of $44,880 applies, and you'll only forfeit $1 for every $3 of earned income above that threshold.
The SSA will also reduce your benefits if you fall under a couple of categories for public-sector workers. If you receive a pension, then your ability to get either retirement or spousal benefits from Social Security can be limited. You can lose your entire Social Security check in some cases, so be sure to see how these provisions affect you.
4. See how Social Security affects your family
Your family may also be affected by when you choose to claim retirement benefits. Your spouse can't claim spousal benefits based on your record until you claim your benefits, and there are no longer any loopholes around that provision to allow you to file but then immediately suspend your benefits. Similarly, eligible children need you to have filed for retirement benefits before they can collect any children's benefits based on your work record.
Keep in mind that your decision doesn't prevent a spouse from claiming retirement benefits based on their own work history. It only poses an obstacle for others claiming on your work record.
5. Keep in mind that you can change your mind -- but only for a while
You have 12 months after you file your initial Social Security application to change your mind and withdraw it. That lets you essentially get a do-over, using Form SSA-521 to let the Social Security Administration know you've changed your initial decision.
There are a couple of things to keep in mind. First, you can only change your mind once in your lifetime, so after you've used Form SSA-521, you'll have to be very careful before you claim Social Security again. Also, if you get your do-over, then you'll have to pay back all the monthly checks you've received. That can be a hardship if you're not prepared.
Don't take Social Security until you've thought through these key issues. That way, you'll be more likely to make the right choice the first time and protect your financial future throughout your golden years.