A lot of people simply sign up for Social Security as soon as they can, and even those who wait often apply as soon as they retire. But there's a lot more to coming up with a smart Social Security strategy that will get you the most benefits you possibly can, and you can't afford to react in a knee-jerk fashion when considering the best way to make the most of the program.
The biggest thing to understand about Social Security is that you can claim your retirement benefits at any time between 62 and 70, and when you claim will make a difference in how much you get every month. It'll also have impacts on what happens to family members and their Social Security benefits as well, so be sure to read on to understand everything that's at stake when you decide it's about time to take Social Security.
Start with a good baseline
The size of your Social Security check shouldn't come as a surprise when you first get it. Smart planning requires using the resources at your disposal, and the Social Security Administration provides a statement that has a lot of key information that can help guide your planning efforts.
The most important resource is the SSA website. There, you can look at your personal Social Security statement using what's called the my Social Security service. On it, you'll see earnings and benefit information for a wide range of situations, including retiring at various ages, becoming disabled, or passing away and leaving a spouse, children, or both behind to collect benefits. With those numbers, you'll have the starting point for coming up with the rest of your planning efforts.
Will you actually keep what Social Security pays?
The numbers that the SSA gives you in your Social Security statement is detailed, but it isn't perfect. It can't take into account the situations in which you'll end up losing all or a portion of your benefits.
For instance, if you're still working and try to collect Social Security before you reach your full retirement age, then a maximum earnings limit applies. For 2018, those who earn more than $17,040 lose $1 in annual benefits for every $2 earned above the limit. If you hit retirement age during 2018, then a higher limit of $45,360 applies, with a smaller forfeiture penalty of $1 for every $3 in extra annual benefits.
You could also lose benefits regardless of age if you or a spouse worked in the public sector and received a pension. If you're the one getting the pension, then the Windfall Elimination Provision can take away some or all of your own retirement benefits, and it can also limit your ability to receive spousal or survivor benefits based on your spouse's Social Security record.
Finally, taxes can take away some of your benefits. If the sum of your taxable outside income and one-half of your total Social Security for the year exceeds $25,000 for single filers or $32,000 for joint filers, then some of your benefits can become includible in taxable income. That means you'll pay income tax on up to 85% of what you get from Social Security.
Different benefits, different rules
In general, the longer you wait, the bigger your checks will be, but there are rule differences that make it tricky. For your retirement benefits, there's a continuous uptick in benefit amounts from 62 to 70. However, spousal benefits max out at your full retirement age, which is currently between 66 and 67 for those in their 60s right now. Waiting beyond that age doesn't get you any additional payout.
Moreover, sometimes you can take one benefit and wait to claim another later. That works for retirement and survivor benefits. For instance, you can elect to take your retirement benefits now, with the intent of switching to survivor benefits after they've grown to the maximum extent possible. Not following that strategy can cost you thousands in benefits with no corresponding advantage.
The rules for certain benefits depend not just on your own decisions but also those of other family members. For example, if you want to claim spousal benefits, you have to wait until your spouse claims retirement benefits. The amount that your surviving spouse will get from Social Security after you pass away depends not only on when your spouse makes that claim but also on when you decided to start taking your own benefits.
Be smart with Social Security
If you haven't had a chance to think through all of these factors, wait a little longer before you make a final decision on Social Security. Making the right choice is an essential part of putting together a winning Social Security strategy.