Though Social Security has been around for a very long time, the program is loaded with complex rules that can be difficult to keep up with. If you're reaching the point where you're ready to file for benefits, it's important to be aware of Social Security's various nuances. Here are a couple of rules that may end up catching you off guard.
1. You may have benefits withheld if you work and collect Social Security simultaneously
The Social Security Administration (SSA) will allow you to work and collect Social Security at the same time. One you reach full retirement age (FRA), however, your earnings won't cause any benefits to be withheld. Or to put it another way, you can earn $500,000 a year and still receive the full monthly Social Security benefit you're entitled to.
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But if you file for benefits before FRA and are still working, the amount you earn could determine how much money you actually receive from Social Security. In this situation, you'd be subject to the earnings-test limit, which can change from one year to the next.
Right now, you can earn up to $19,560 a year, or $1,630 a month, without having any money taken out of your Social Security payments. Once you exceed that limit, though, you'll have $1 in benefits withheld for every $2 of earnings.
Meanwhile, the earnings-test limit is much higher for workers reaching FRA this year. In that case, you can earn up to $51,960 a year, or $4,330 a month, without impacting your Social Security income. From there, you'll have $1 of benefits withheld for every $3 you earn.
It's important to know that withheld benefits aren't forfeited permanently. Once you reach FRA, the SSA will recalculate your monthly benefit and make sure you're paid back the money that was withheld for exceeding the earnings-test limit.
But remember, claiming Social Security before reaching FRA always results in a reduced benefit, regardless of whether you're working or not. So before you take that hit, you may want to reconsider if you'll be losing a large chunk of your benefits by virtue of earning too much money.
2. You can't claim a spousal benefit if you're married until your spouse files
If you're married and have never worked or you haven't accrued enough lifetime work credits to be eligible for a monthly Social Security benefit of your own, the good news is that you may be entitled to spousal benefits. These can equal up to 50% of what your spouse is entitled to each month.
But one thing you should know is that you can't claim a spousal benefit while married until your spouse files for Social Security. And that could prove problematic if you want to retire early but your spouse wants to keep working and delay their benefits as long as possible.
Meanwhile, if you're claiming spousal benefits on an ex-spouse's record do not necessarily need to wait for their former spouse to sign up for Social Security. Unfortunately, the rules are actually stricter for married filers than divorced filers in this regard.
There are different aspects of Social Security that may throw you for a loop. (For example, did you know that those benefits may be taxable during retirement?) That's why it's important to keep reading up on how Social Security works. Arming yourself with information could help you avoid unpleasant surprises.
