There are certain Social Security rules that many people are aware of. You might know, for example, that the earliest age you can sign up to claim benefits is 62, and that you won't get your complete monthly benefit based on your personal income history until you reach full retirement age. You may even be aware of the fact that delaying your filing beyond full retirement age will result in a boosted benefit.
But there are some Social Security rules that aren't as well-known as the ones just mentioned. Here are a few you should be aware of before you retire.
Image source: Getty Images.
1. You can undo your filling once
Some people claim Social Security early and regret it afterward because it means getting stuck with a smaller monthly benefit for life. But you should know that you're entitled to one Social Security do-over in your lifetime.
If you file early and end up wanting a second chance, simply withdraw your benefits application within a year and repay all of the money you received from Social Security to get a chance to file again at a later age. Doing so could be a smart move financially if you start to realize that you're spending down your nest egg faster than you expected to.
2. Taxes on benefits may apply
Many seniors are downright shocked to learn that their monthly Social Security benefits are subject to taxes. First, there are certain states that impose taxes on benefits, though thankfully, many offer exemptions to low and even moderate earners.
But federal taxes on Social Security benefits could apply if your provisional income exceeds a certain threshold. Provisional income is half of your annual Social Security benefit plus your non-Social Security income, including tax-free interest you may be receiving.
If your provisional income is between $25,000 to $34,000 as a single tax-filer, you'll face taxes on up to 50% of your Social Security benefits. Beyond $34,000, you'll face taxes on up to 85% of those benefits.
For married couples filing jointly, a provisional income between $32,000 and $44,000 means facing taxes on up to 50% of Social Security benefits. And beyond $44,000, couples face taxes on up to 85%.
3. There's no option to grow a spousal benefit
If you're claiming Social Security based on your own earnings record, you can delay your filing up until age 70 and boost your monthly benefit in the process. But that option does not exist when you're claiming a spousal benefit.
Spousal benefits are equal to 50% of what your current or former spouse is eligible for in Social Security when you file at full retirement age. But if you delay your spousal benefit claim, you won't get any more money, so there's really no sense in doing that.
It's important to know how Social Security works so you can file for benefits strategically and understand the full financial impact of receiving them. It pays to read up on these specific rules to put yourself in the best position to make the most of Social Security.
