There's a good chance Social Security will play an important role in your retirement finances. Of course, in an ideal world, you'll be coming in with savings of your own, too. But because Social Security guarantees you a monthly paycheck, it's important to know how to maximize those benefits. With that in mind, here are three Social Security secrets it pays to know in the course of your retirement planning.
1. Working at least 35 years puts more money in your pocket
Social Security doesn't pay all retirees the same monthly benefit. Rather, the amount of money you're entitled to will hinge on your specific income history.
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You should know, however, that Social Security will take your 35 highest-paid years of earnings into account when calculating your monthly benefit. And you should also know that if you don't have a minimum of 35 years of income under your belt, you'll have a $0 factored into your benefits equation for each year you don't.
So if you're nearing what you think is the end of your career, do some number-crunching. If you took a career break at any point, whether to raise kids, care for an aging parent, or go back to school, see how many income-earning years you have to date. You may find that extending your career for a few more years leads to a higher monthly Social Security payday for the rest of your life.
2. You can continue to work while collecting benefits, but you'll need to watch your income
Many people plan on working during retirement because the extra money is helpful and it's a great way to stay busy. But don't assume that you won't be able to hold down a job once you begin collecting Social Security.
You can absolutely get benefits and collect a paycheck from a job at the same time. But if you're in that situation before having reached full retirement age, you will need to be mindful of the earnings-test limits, which change every year.
In 2024, for example, you can earn up to $22,320 without having any Social Security income withheld. From there, you'll have $1 in benefits withheld per $2 of earnings beyond $22,320. But those withheld benefits also aren't lost forever -- they're added back into your monthly payments once full retirement age arrives.
You should also know that the earnings-test limit is higher if it's the year you'll be reaching full retirement age but you just haven't gotten there yet. For example, let's say you're working and collecting Social Security right now but your full retirement age doesn't arrive until December. In that case, your earnings-test limit this year is $59,520. From there, you'll have $1 in benefits withheld per $3 of earnings above $59,520.
3. You can collect Social Security even if you never worked yourself
We just discussed the fact that your monthly Social Security benefit in retirement will hinge on your earnings history. You therefore might assume that if you never worked, you won't be entitled to benefits later on.
But actually, Social Security pays benefits to current and former spouses of those who are eligible for benefits. So if you never worked but your spouse is entitled to Social Security, you can receive spousal benefits worth up to 50% of your spouse's monthly payments at full retirement age. Simply put, if your spouse's benefit at full retirement age is $2,800, you get $1,400 in spousal benefits provided you wait until your own full retirement age to sign up.
It's important to educate yourself on Social Security well ahead of retirement so you can strategize on ways to make the most of the program. Keep these points in mind in the course of your planning. And if you're married, make sure to involve your spouse as well.
