Image source: SSA Office of the Inspector General.
Social Security is a complicated program, and many people struggle to try to figure out the best Social Security strategy for their particular situation. Yet despite Social Security's complexities, there are some basic rules that you can use to get most of the way to your best solution. Below, we'll go through those rules to help you get more out of Social Security.
Rule 1: Waiting longer to claim benefits gives you a smaller number of bigger checks.
The amount of your retirement benefit is affected by when you claim. Someone who would receive $1,000 at full retirement age this year would get only $750 if they claim at age 62 or $1,320 if they claim at age 70. The trade-off, though, is that you give up several years of payments by waiting. Breakeven analysis can provide some answers about which course might make the most sense for you, but the common-sense answer is that if you can wait to claim until later, you'll value the bigger payments when you get them.
Rule 2: Spousal benefits are available if your spouse has filed for retirement benefits.
Married couples can take advantage of spousal benefits as well as their own retirement benefits. In order for you to claim spousal benefits, your spouse has to have claimed retirement benefits on your spouse's own work history. Former strategies involving your spouse filing for benefits and then suspending them no longer work for those who didn't implement them prior to the April 2016 deadline. The spousal benefit typically pays you one-half of your spouse's full retirement benefit amount, adjusted downward if you claim it before you reach full retirement age.
Rule 3: Divorced spouses can get benefits if they meet the guidelines.
Many divorced spouses never realize that they can get Social Security benefits based on an ex-spouse's work history under certain circumstances. Specifically, you have to have been married to your ex-spouse for 10 years or longer to claim spousal benefits as a divorced spouse. If you've remarried, then you can't claim spousal benefits. However, survivors of an ex-spouse can get benefits even if they've remarried as long as they waited until reaching age 60 or older before tying the knot again.
Rule 4: You can still work and get Social Security up to a certain amount.
Contrary to popular misunderstandings, you don't have to quit your job to claim Social Security benefits. Those who have reached full retirement age can work as much as they want without any impact to their benefit amount. Those who won't reach full retirement age until after 2016 have an earnings limit of $15,720, above which one must forfeit $1 of Social Security benefits annually for every $2 earned. The corresponding limit for those who reach full retirement age during 2016 is $41,880, above which you'll lose $1 in benefits for every $3 in extra earnings prior to the day of the year on which you hit full retirement age.
Rule 5: You can change your mind about your Social Security benefits.
Social Security recognizes that some people might later regret their decision to take their benefits at a certain age, so they allow for people to withdraw their applications for Social Security under certain circumstances. To qualify, you must complete Form SSA-521 within 12 months of initially claiming your benefits. If accepted, you also must repay any benefits that you've already received from Social Security. That window is fairly limited, but it does provide some latitude to consider retirement and then change their mind after getting nearly a year's worth of experience. The option to withdraw an application is only available once in a lifetime, however, so you shouldn't count on taking advantage of it on multiple occasions.
Social Security can be difficult to understand, especially for those who are in or nearing retirement and need to fully comprehend the financial implications of the benefit options they'll have. By following these simple rules and getting some other basic information, you can make a smarter decision about the Social Security benefits that you've earned throughout your lifetime.
