10 Smart Things to Do Before Filing for Social Security

Congratulations -- after paying FICA taxes for 10 years or more, you're almost ready to collect your federal retirement benefit.

What's left to do is relatively easy: Complete 10 action steps to verify you're getting all you deserve, and that you're timing your application properly. Put in a small effort now, and you can kick off your retirement with confidence.

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Your Social Security benefit is calculated from your earnings history. If your earnings are underreported in your file, your benefit will be less than what you're owed.

Earnings can be missing from your record if your employer reported your income incorrectly or used the wrong name or Social Security number. You may also see omissions if you changed your name but haven't reported the change to the Social Security office.

To check your earnings history online, create an account at the my Social Security website. You can also request a mailed statement with your earnings history via Form SSA-7004.

If your earnings statement is incomplete, gather whatever documentation you have for that income. That might be your tax return, a W-2, or a wage stub. Then contact Social Security and request the correction.

ALSO READ: Have You Checked Your Social Security Earnings Record Lately?

Your full retirement age (FRA) is the age at which you qualify for your full Social Security benefit. If you start receiving Social Security before FRA, your benefit is reduced.

FRA is also the age at which earned income limits drop away. That means you can receive Social Security and a paycheck at the same time without affecting your benefits. Claim Social Security prior to FRA, and your benefits are cut if you earn more than the annual income thresholds.

If you were born after 1959, your FRA is 67. If you were born between 1943 and 1959, your FRA is somewhere between 66 and 67. You can find your FRA here or on your Social Security statement.

You won't have full confidence that you're timing your Social Security application right until you know your living expenses in retirement. If your living expenses end up being higher than expected, you might wish you'd delayed Social Security so your benefit would be higher.

Avoid that outcome by listing out your retirement living expenses in a budget. The budgeting process forces you into a detailed review of how you're spending money.

The easiest place to start is by listing out your current expenses. For each line item, estimate whether the expense will go up, down, or stay the same once you retire.

Some expenses will be straightforward. Your retirement contributions, for example, should go away. Others will require more guesswork, like healthcare. To be conservative, overestimate expenses if you're not sure.

Your goal is to have a reasonable estimate of what you'll spend each month, quarter, and year in retirement. That also tells you what your total income needs to be.

ALSO READ: Retiring in 2022? 4 Steps for Setting Up Your Budget

With a firm grasp on your living expenses, the next step is to verify you'll have the income you need.

Add up all sources of retirement income including your estimated Social Security benefit. If the number is too low, you can adjust your income, expenses, or both. Ways to plump up your income include working part-time, shifting some of your portfolio into dividend stocks, starting a side hustle, or delaying your Social Security benefit. Pushing out your retirement date would also give you time to save more.

Tackle the problem from the expense side by cutting back on discretionary spending like traveling and eating out.

It doesn't seem like you should pay income taxes on Social Security -- but the IRS thinks otherwise. If you have other sources of retirement income, it's likely your Social Security benefit is taxable.

The taxable percentage of your Social Security income is based on your combined income. (Combined income is your adjusted gross income plus nontaxable interest plus half of your Social Security benefits.) You pay taxes on 85% of your Social Security income when your combined income is more than $34,000 for single filers or $44,000 for joint filers.

Single filers who make between $25,000 and $34,000 will pay tax on 50% of their Social Security income. For married filers, the range is $32,000 to $44,000.

Your Social Security is not taxable only when your combined income is below $25,000 for single filers or $32,000 for joint filers.

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Spare yourself some grief. If you're married, talk through your Social Security strategy with your spouse.

This conversation is particularly important if one of you is claiming spousal benefits on the other's earnings record. In this scenario, the primary wage earner must collect benefits first before the other can receive the spousal benefit. And if the primary wage earner claims benefits before FRA, both of you will receive a reduced benefit.

Those dependencies don't exist when you and your spouse each claim benefits on your own earnings records. But the two of you should strategize on timing anyway. There are scenarios to justify claiming at the same time or different times. For example, you might want to balance having immediate income and a higher benefit. In that case, one of you could claim early and the other could claim late.

ALSO READ: 4 Things to Know if You're Claiming a Social Security Spousal Benefit

You can work and collect Social Security at the same time, but there is a catch. If you haven't reached FRA, you are subject to income thresholds. Make more than the threshold, and you get penalized with a benefit reduction.

The benefit reduction formula has two stages. The first applies between age 62 and the year before you reach FRA. In those years, if your income is higher than the annual limit, Social Security reduces your benefit by $1 for every $2 you exceeded the limit. The limit can change from year to year, but it's $19,560 in 2022.

In the year you reach FRA, there's a higher limit and softer penalty. Your benefit will be trimmed by $1 for every $3 you make over the cap. In 2022, that cap is $51,960.

Social Security won't cover your living expenses on its own. Most retirees cover the shortfall from their savings, but you might also have pension or annuity income in play.

Whatever the composition of your retirement income is, you're likely on a fixed budget. And that means you may not have extra cash to absorb unexpected expenses.

For that reason, it's critical to have an emergency cash fund on hand in your senior years. If a surprise healthcare bill pops up, for example, you can cover it out of your savings instead of charging it to a credit card.

The older you are when you claim Social Security, the higher your benefit will be. The increase hinges on your FRA. If you haven't reached that, each month you delay your benefits spares you a reduction of up to five-ninths of 1%. After FRA, each month you wait to receive Social Security increases your benefit by up to two-thirds of 1%.

If you just glazed over at the fractions reference, don't worry. You don't have to calculate the numbers on your own. You can quantify the value of delaying your benefits online at my Social Security or by using the Social Security retirement estimator.

As you look at different scenarios, also consider the value of the income you don't receive up front when you delay your benefits. You may decide it's not worth the higher benefit to wait -- but at least you'll know your options.

Even after you've thought through your budget, planned for taxes, and strategized with your spouse, you may change your mind about receiving Social Security. Maybe you decide your Social Security income isn't enough yet for the lifestyle you want. Or, you might get bored at home and decide to go back to work.

Fortunately, there are two ways to undo your decision to collect Social Security -- assuming you haven't celebrated your 70th birthday. The first is a benefit suspension, available only after you reach FRA.

If you haven't reached FRA, your only option is to withdraw your application within 12 months of filing. The tricky part is you'll have to repay all benefits received, including any spousal benefits on your earnings record.

If there's any possibility you'll withdraw your application, think through how you'll repay those funds. Having a plan for that gives you the option to change your mind prior to FRA.

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You deserve a low-stress retirement. It's your reward for working all those years, after all. Give yourself a shot at that carefree retirement lifestyle by checking off a few action items now. You'll be glad you made the effort later -- when you know you're getting your full benefit and confident you can fund the lifestyle you want.

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