Author: Dan Caplinger | July 24, 2019
More than just getting a check
Social Security has more than 60 million recipients currently drawing benefits, and nearly every American hopes to get something from the program during their lifetimes. Yet Social Security is more complicated than you might think, and understanding the finer points is vital in order to make the most of the valuable benefits you've earned.
Keep reading to find out 10 of Social Security's finer points -- and learn how you can get more from your benefits.
1. Social Security replaces more income for low-wage workers than for highly paid workers
Social Security benefits are calculated using a formula that takes into account your average earnings during your lifetime, but the higher your income is, the less of your pre-retirement income gets replaced. The first tier of your income -- $926 in 2019 -- results in $0.90 in benefits for every $1 of income. But above that level, each additional dollar gives you just $0.32 in extra benefits, and above a second tier ($5,583 in 2019), it drops further to just $0.15.
2. Annual Social Security raises won't necessarily track your rising costs
One primary advantage of Social Security is that the program adjusts benefits every year for inflation. However, these cost-of-living adjustments (COLAs) use a measure of inflation that's geared toward the things that urban wage earners and clerical workers have to spend money. Retirees have a much different mix of expenses, and historically, those costs have risen at a faster pace than what COLAs provide.
3. Many spouses have to coordinate to get benefits
Married couples have a host of planning opportunities with Social Security, but they also have to rely on each other in order to maximize their benefits. For example, in a one-worker family, the non-working spouse can't claim spousal benefits until the working spouse claims retirement benefits. That can lead to tough decisions, especially if the ideal solution for the worker would be to delay making a Social Security claim until later.
4. There's a maximum total Social Security benefit for your family
One worker can provide benefits not just for the worker's own retirement but for a spouse and children as well. However, the Social Security Administration puts a limit on the amount that a family can receive based on a single worker's employment history. Calculating the family maximum is complicated, but it generally tops out at between 150% and 180% of the worker's retirement benefit. Above that, recipients have their benefits reduced proportionately in order to keep total payments below the maximum.
5. Social Security actually costs about twice as much as you think
If you're an employee, you've probably noticed that a portion of your paycheck gets withheld to go toward Social Security payroll taxes. But what you probably don't know is that your employer is also on the hook for the same amount: 6.2% of your paycheck. As self-employed people know all too well (since they pay both halves), the federal government gets 12.4% of your pay up to the maximum six-figure amount set each year.
6. There's a more than 75% swing in your monthly benefits depending on when you claim
Most people understand that if you claim Social Security early, you'll get less in benefits than if you waited until full retirement age. Similarly, you can boost your retirement benefit by waiting beyond full retirement age up to age 70. But the sheer difference in payments is huge. For someone whose full retirement age is 67 and who'd be entitled to receive $1,000 at full retirement age, claiming at 62 would give you $700 per month, while claiming at 70 would result in a $1,240 monthly benefit -- a difference of 77%.
7. You have to work a long time to earn retirement benefits
Retirement benefits under Social Security aren't available until you've accumulated at least 40 work credits. With a maximum of four credits per year, you'll have to put together at least a 10-year work history before you can claim retirement benefits. Disability benefits are a little easier to get, but you'll still have to have at least a minimal employment history in order to get them.
8. Some people get taxed on their Social Security
Social Security benefits can be subject to income tax if your countable income exceeds certain levels. To figure out if you might owe tax, take half your Social Security benefits for the year and add it to your other taxable income. If the total exceeds $25,000 for single filers or $32,000 for joint filers, then you'll possibly have to include a portion of your benefits as taxable income. The exact amount depends on multiple factors, but in some cases, up to 85% of what you receive from Social Security could end up in your taxable income.
9. You can claim survivor benefits separately from your own retirement benefits
If you're a widow or widower, then you can receive survivor benefits based on your deceased spouse's work history as early as age 60. What many people don't know is that you don't have to claim both your survivor benefits and any of your own retirement benefits at the same time. That opens up a strategy whereby you can claim one benefit while delaying taking the other, letting it grow. The result can be a lot more in total benefits than you'd get if you simply claimed everything at once without thinking about it.
10. You've got a year to change your mind about Social Security
If it turns out you've made the wrong choice in deciding when to claim your Social Security, there's a limited time in which you can undo your decision. File a request to withdraw your original Social Security application using Form SSA-521, and if it's granted, then you'll be able to claim later and get whatever you would've gotten if you'd simply waited that long in first place. A couple notes, though: You'll have to repay any Social Security benefits you've already received, and you only get one shot at this strategy.
Make the most of Social Security
Social Security is tricky, but you can still master it and get the most benefits that you're entitled to receive. Just by knowing these and other aspects of the program, you'll be in a much better position to make a smart choice to maximize the size of your monthly checks.
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