Image: Social Security Administration Office of the Inspector General.
Making the most of Social Security is an essential part of your financial security in retirement. Yet there's a lot that most people don't know about Social Security and how it works. Below, you'll learn about seven little-known aspects of the Social Security program that can get you more from your retirement benefits.
1. Working longer helps you strengthen your retirement in two different ways.
Working for an extra year helps most people boost their Social Security benefits for two separate but equally important reasons. First, if you retire a year later and wait to claim Social Security until you quit work, then your monthly benefits will be higher by anywhere from 6% to 8%. Also, when calculating your benefit amount, Social Security considers your 35 top-earning years after adjusting for inflation, so an extra year of work often fills in what would otherwise be an entry of "zero" or replaces a low-earning year with a higher-earning one.
2. Higher earnings produce higher benefits -- but not in a straight line.
Your monthly benefit is based on your average monthly earnings, but the direct impact on your benefits changes. For low-income workers, as much as 90% of average monthly earnings get incorporated into the primary insurance amount that determines benefit amounts. Yet once you hit higher income thresholds, the positive impact of additional income is reduced. Middle-income workers see a $0.32 boost in their primary insurance amount for every $1 of extra average monthly earnings, while upper-income workers get just $0.15 added to their primary insurance amount per $1 of extra earnings.
3. Spouses can't get double benefits, but some can boost the size of their checks.
Spouses who work can claim spousal benefits, as well as their own retirement benefits. But many people mistakenly think that they can get two checks, one for each benefit. Social Security doesn't allow that type of double payment.
However, Social Security does allow spouses to take the larger amount of the two when they claim both regular and spousal benefits. If the spousal amount is higher, then the excess is treated as an additional spousal benefit above the worker's regular retirement benefit.
4. Ex-spouses can claim spousal benefits.
Many divorced spouses don't realize that they can claim benefits based on their ex-spouse's work history. To qualify, you must have been married for at least 10 years, and you can't have remarried. If you marry someone else, then the only spousal benefits you can claim are those based on your current spouse's work history.
5. Widows and widowers can collect survivor benefits earlier -- and sometimes even if they've remarried.
Retirement benefits for widowers and widows can kick in as early as age 60, although you'll still have to wait until full retirement age to get your full benefit amount. Disabled spouses can claim even earlier at age 50 if their disability started before the deceased spouse died or within seven years thereafter.
For widows and widowers, getting remarried stops benefits if you do so before age 60. Remarry at 60 or older, however, and you can keep the survivor benefits you've earned as a widow or widower.
6. Timing your retirement and when you start collecting Social Security can help you avoid forfeiture.
The earnings test for those who take early Social Security benefits and still work can cause you to lose part of your benefit check. For those who are younger than full retirement age throughout the year, earnings above $15,720 will cost you $1 in annual benefits for every $2 you earn above the threshold. If you reach full retirement age during the year, then the limit is higher: You forfeit $1 for every $3 you earn above $41,880. If you take benefits in the middle of the year, a monthly test applies that essentially pro-rates the annual earnings test amount but excludes money you earned before you claimed Social Security.
Keep in mind, however, that benefits forfeited due to earned income are not lost forever. Once you reach full retirement age, your benefit will be increased to account for the money that was withheld.
7. Two key strategies are going away but are available for a limited time.
Last month, lawmakers effectively eliminated two Social Security strategies: the file-and-suspend strategy and the file-as-a-spouse-first strategy. Yet the law that eliminated those provisions provided for generous grandfathering rules. Those who turn 62 by the end of 2015 will have the right to file as a spouse first in the future, restricting their application to only receive spousal benefits while letting their own retirement benefit build. Those considering file-and-suspend to allow their spouses to collect spousal benefits have until the end of April 2016 to do so and still get the advantages of doing so.
Social Security is complex, but these little-known tips aren't hard to understand. By being smart about your rights under Social Security, you can get all the benefits you deserve.
