What You Don’t Know About Social Security Could Cost You

You must consider these five scenarios before making solid decisions.

Brian Stoffel
Brian Stoffel
May 2, 2016 at 7:02AM
Investment Planning

Don't be this guy. Photo: Casey Fleser, via Flickr.

I can't speak for my whole generation (I'm 34-years old), but for most of my adult life, there were only two things that came to mind when I heard about "Social Security":

  1. I don't really know much about -- nor care to know much about -- the program.
  2. My parents told me to save assuming that it won't be around when I retire -- which isn't harmful advice, but also isn't closely related to the facts either.

In truth, Social Security is massively important to the vast majority of Americans. Consider these two facts:

  • 53% of retired married couples count on Social Security for over half of their income.
  • 47% of retired unmarried persons count on Social Security for over 90% of their income.

Knowing how important the program is, it becomes quickly obvious how important it is to be informed about the choices you have to make regarding Social Security. While the #1 way to ensure that you have a comfortable retirement, financially speaking, has nothing to with Social Security (live below your means and invest your savings and you'll likely be just fine), there are lots of important details that today's working population needs to know.

Here are the top five facts that you must know:

1) Full retirement age is changing
If you ever take a look at the statements that the Social Security Administration sends you, or go online and use the group's estimation calculator, you'll get an idea of how much income you'll be able to count on in retirement. But there's a catch: that is your benefit at full retirement age.

As it stands now, full retirement age is 66, with the ability to start claiming for a reduced benefit at 62, and a substantially larger benefit maxing out at age 70. But those guidelines are changing.

If you were born in...

Then Full Retirement Age is...

1943 to 1954

66 years old


66 years and 2 months old


66 years and 4 months old


66 years and 6 months old


66 years and 8 months old


66 years and 10 months old


67 years old

Source: IRS

For those who still have decades before they hit retirement, this isn't the end of the story. Social Security's primary trust fund is predicted to run out of money over the next two decades. One of the solutions regularly floated to help solve the problem is an increase in the full retirement age.

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Keep your eyes on any solid news regarding the program to make sure you've got all the facts when you plan out your retirement age.

2) When you claim matters
As I said above, the full retirement age is changing. But you don't actually need to wait until this age to start receiving benefits. In fact, there's currently a window that goes from age 62 to 70 to start receiving benefits.

When you start claiming can have a significant effect on the amount of money you'll be receiving.

If you claim on this birthday...

You'll get this much of your "full" benefit



















Source: IRS

It's worth noting that these figures were designed to be a zero-sum game for the government. If you start getting benefits later, you'll be alive to receive benefits for less time than if you started at age 62. According to actuarial tables, your lifetime benefit should be the same no matter what.

But you know more about your individual health -- and the history of your family's -- than any actuarial table. And you can use that information to your advantage to make sure you get the resources you need in retirement.

3) Your benefit is based on 35 years of working
Your retirement benefits from Social Security are based on the inflation-adjusted average of your 35 highest-earning years in the workforce. If you didn't earn income for a full 35 years, each year short will simply be calculated as a $0 -- which can significantly reduce your overall benefit.

4) Don't forget about survivor/widow(er) benefits
If your spouse passes away, you will usually qualify for some type of benefit. This even applies to most divorcees, assuming that they were married to the deceased partner for at least 10 years and are not remarried.

When a spouse or former spouse passes away, you are usually entitled to keep either (1) your own Social Security benefit, or (2) your (ex-)spouse's benefit, whichever is higher. If your spouse or ex-spouse waited to claim increased benefits, your are entitled to the exact same benefits.

5) Coordinate with your spouse
As you can imagine based on the information above, coordinating your retirement age with your spouse can be very important. Usually, married persons can receive Social Security in one of two ways, whichever is the higher amount.

  • Spouse #1 and spouse #2 each obtain benefits based on their own 35 highest-earning years.
  • Spouse #1 gets benefits for his/her 35-highest earning years, while spouse #2 gets exactly half of spouse #1's benefit.

It's important to note, however, that in the second scenario, spousal benefits max out at full retirement age. In other words, spousal benefits stop increasing at age 66, even though the primary breadwinner's benefits continue accruing to age 70.

As you can tell, there's a lot to consider. That's why it's crucial to discuss all of this with both your spouse and a fiduciary advisor. What you don't know about Social Security really can hurt you in the long run.