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Don't Claim Social Security Benefits Until You Understand These 3 Crucial Rules

By Katie Brockman - Nov 21, 2020 at 10:30AM

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Otherwise, it could cost you.

More than half of U.S. workers say they don't have a solid understanding of how Social Security works, according to a survey from the Nationwide Retirement Institute. That same survey also found that around 20% of baby boomers expect to depend on Social Security as their sole source of income in retirement.

If you're going to rely on Social Security, it's crucial to know the ins and outs of the program. Without a solid understanding of these three rules, you could miss out on money you're entitled to.

Social Security card with assorted bills

Image source: Getty Images.

1. How the age you claim affects your benefits

Your full retirement age (FRA) is between 66 and 67, depending on the year you were born, and it's the age you'll receive 100% of the benefit amount you're entitled to. You don't have to claim benefits at your FRA, but claiming at any other age will affect how much you receive each month.

The earliest you can begin claiming is 62, or you could delay claiming benefits past your FRA up to 70. If you claim early, you'll receive more checks over a lifetime, but each monthly payment will be reduced by up to 30%. By waiting to claim, you'll receive fewer (but bigger) checks. If you wait until 70, you'll receive your full benefit amount plus up to 32% extra each month.

The age you begin claiming permanent affects your benefits, so choose wisely before you file. 

2. How working after claiming Social Security could reduce your benefits

Whether you decide to pick up a part-time job, start a business, or go back to full-time work after you begin claiming Social Security, working while claiming benefits could result in smaller monthly checks.

How much your benefits are reduced depends on your age as well as your income. If you won't reach your FRA in 2021, your benefits will be reduced by $1 for every $2 you earn in excess of $18,960 per year. If you will reach your FRA in 2021, your earnings are subject to a different limit, and your benefits will be reduced by $1 for every $3 you earn in excess of $50,520 per year.

Fortunately, these benefit reductions aren't permanent. Once you reach your FRA, your benefit amount will be adjusted to account for the money that was withheld. And after your FRA, your earnings will no longer affect your benefit amount, so you can work as much as you'd like without your monthly checks being reduced.

3. How your benefits affect your spouse

If you're married, it's a good idea to think about how Social Security benefits will affect each of you. The lower-earning spouse may be entitled to spousal benefits, and the maximum amount a retiree can collect in spousal benefits is 50% of the higher-earning spouse's benefit amount at FRA.

In addition, if one of you outlives the other, the surviving spouse may be entitled to survivors benefits. Generally, when one spouse passes away, the other is eligible to collect the deceased person's benefit amount. So if you have reason to believe your spouse may outlive you, it may be a good idea for you to delay benefits so your spouse will collect more in survivors benefits, or vice versa.

Social Security can be a complex topic, but it's worthwhile to do your research if you expect to depend on your benefits at all. By understanding these three rules, you can maximize your benefits and enjoy your senior years more comfortably.

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