12 Social Security Facts to Help You Prepare for Retirement

Social Security serves as a crucial source of income for millions of seniors today. Whether you're a few years or a few decades away from retirement, it's helpful to know what role those benefits might play during your golden years. Here are a few key things you need to know.

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Seniors don't just get the same universal monthly benefit from Social Security. Rather, your monthly benefit is calculated based on your average monthly wage, adjusted for inflation, during your 35 highest-paid years on the job. This also means that if you don't put in a full 35 years in the workforce, you'll have a $0 factored into your benefits equation for each year you're missing an income.

ALSO READ: The Surefire Way to Get the Biggest Social Security Benefit

The monthly benefit your wage history entitles you to becomes yours once you reach full retirement age. That age, however, depends on when you were born. If you were born during or before 1954, you get your full Social Security benefit at 66. From there, full retirement age increases by two months so that those born in 1955 get their full benefit at 66 and two months, those born in 1956 collect their full benefit at 66 and four months, and so forth. Anyone born in 1960 or later has a full retirement age of 67.

Though you can't claim your full Social Security benefit until you reach full retirement age, you can file as early as age 62. Doing so, however, will result in a permanent hit to your benefits. With a full retirement age of 66, you're looking at a 25% reduction in your monthly benefit if you file at 62. With a full retirement age of 67, filing at 62 slashes your benefit by 30%.

Just as you're allowed to claim Social Security before reaching full retirement age, so too can you sign up for benefits afterward. In fact, for each year you delay your filing, your benefits will increase by 8%. This incentive runs out at age 70, though, so there's no need to delay your filing past that point.

The $16,728 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.

Because Medicare and Social Security are interrelated, it's often assumed that you must sign up for Social Security to get healthcare benefits through Medicare. Not so. Medicare eligibility begins at 65, which is before full retirement age for Social Security, so it often pays to enroll in Medicare first and then claim Social Security later on.

ALSO READ: 7 Essential Medicare Rules You Need to Know

Having a job won't prevent you from collecting Social Security. Once you reach full retirement age, you can earn as much as you'd like without having it impact your benefits. If you're working and collecting Social Security prior to full retirement age, you may have a portion of your benefits withheld and paid back to you later if your earnings exceed a certain threshold.

If you are or were married to someone who's eligible for Social Security, you may be entitled to spousal benefits based on your current or former spouse's work record -- even if you never worked yourself. That benefit is worth up to 50% of your spouse's benefit at full retirement age.

Social Security won't replace your entire pre-retirement paycheck. If you're an average earner, you can expect those benefits to amount to about 40% of your former income. Most seniors, however, need more like 70% to 80% of their previous earnings to live comfortably, which means you should plan on having an income source outside of Social Security, like an IRA or 401(k) plan you take withdrawals from.

Claiming Social Security before full retirement age will leave you with a lower monthly benefit for life -- unless you manage to withdraw your benefit application within a year of filing and repay all of the money in benefits you received. If you do that, you'll get the option to file again at a later point in time and secure a higher monthly benefit. But be careful, because you only get one do-over in your lifetime.

ALSO READ: The Best Reason to Take Social Security Long Before Age 70

If Social Security is your only retirement income source, your benefits may not be taxed; otherwise, expect taxes on them. To see if that will happen to you, you'll need to calculate your provisional income, which is 50% of your annual Social Security income plus all of your non-Social Security income. If that total lands between $25,000 and $34,000 as a single tax filer, or between $32,000 and $44,000 as a couple filing jointly, you could be taxed on up to 50% of your benefits. If that total exceeds $34,000 as a single tax filer or $44,000 as a couple filing jointly, you could face taxes on up to 85% of your benefits.

The $16,728 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.

Your provisional income will determine whether your Social Security benefits are subject to federal taxes, but you may be subject to state taxes as well. There are 13 states that tax Social Security income to varying degrees: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia.

Social Security is facing a revenue shortfall in the coming years as baby boomers rapidly leave the workforce and start drawing benefits. The program has trust funds it can tap to compensate for missing revenue, but once those funds run dry, benefit cuts may be on the table. Though that's not guaranteed to happen, it pays to brace for that possibility -- and secure outside income sources in case your Social Security benefits are indeed cut.

The more you know about Social Security, the better you'll be able to plan for retirement. Keep reading up on Social Security's numerous nuances and rules, and stay tuned for updates on the program's finances to understand how likely you'll be to actually collect your retirement benefit in full.

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