On the surface, Social Security might seem like a simple system: You pay in while you're working and then get monthly benefits when you retire. But you should think of Social Security as unknown territory, full of toll roads, burned-out bridges, roundabouts, one-way streets and dead-ends. If you want a road map, use these Social Security tips to help you navigate the system.
1. Study Up on Social Security Before You Apply
If you don't give much thought to benefits before it's time to claim, Social Security can seem like a dense thicket of regulations. Start early and read up on the Social Security rules well before you get to retirement age.
Surf the Social Security website and play with the claiming calculators to figure out what benefits you would receive at different ages. The more you know and the earlier you know it, the less intimidating the procedures will seem.
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2. Don’t Depend on Social Security Alone
Social Security benefits help millions of retired Americans stay solvent through their retirement years. But the program was never intended to be the sole income source for retirees.
The Social Security Administration offers the following Social Security tip: Don't try to retire on your benefit check alone. The benefit replaces about 40 percent of the average wage earner's income, and retirees typically need 70 percent or more of their pre-retirement income to live comfortably, the agency advises.
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3. If You Earned More, You Need to Save More
Social Security replaces income progressively. That means lower earners generally receive a higher income replacement rate than higher earners.
Still, most people will need additional sources of retirement income, said Richard Rausser, senior vice president of Pentegra Retirement Services. What you will need depends, in part, on the cost of living in the area where you retire and the level of income you're accustomed to.
4. Be Sure to Work Long Enough to Earn Benefits
The amount of your monthly retirement benefit depends on how much Social Security tax you pay. The tax rate is 6.2 percent on earnings up to the applicable taxable maximum amount.
The maximum taxable earnings increased in 2018 from $127,200 to $128,400. To max out your retirement benefits, that's the amount of salary you should aim for. You need at least 40 quarters, or 10 years, of Social Security wages to qualify for retirement benefits.
5. Choose a Community With a Low Cost of Living
You can find great retirement communities in the United States, where a couple will be able to live on Social Security benefits alone. If you want to do your own research, check out cost of living statistics for cities that interest you.
6. Think Twice Before You Retire Abroad
There are many countries with very low costs of living, where your Social Security and retirement checks will go far. But if you have never lived abroad and aren't fluent in another language, think twice before you opt for the expat life. It's harder than you might think to adjust to a new country and a new culture, far from your family and friends.
Check out the cheapest countries to live in by doing some research. Then go for an extended visit before you send all your worldly goods across the ocean.
7. Pin Down Your Full Retirement Age
You'll get higher Social Security benefits if you wait until full retirement age to retire, so pin down exactly when that is. For example, people turning 62 in 2018 must wait until they are 66 years and 4 months to get to full retirement age.
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8. Don’t Expect a Bump-Up at Full Retirement Age
One of the biggest Social Security myths is that if you claim your benefits early, your payment stays lower from 62 until full retirement age, then bumps up to a higher amount. The truth is: An individual retiree will receive the same monthly benefit, increased only by the cost of living adjustment, throughout retirement.
In general, you make a decision about whether to take a lower benefit earlier or a higher benefit later. The automatic bump-up myth simply represents a misunderstanding of how the system works.
9. Carefully Consider the Best Time to Claim
Don't just take the popular word-of-mouth advice to collect Social Security benefits as early as you can, said Rausser. You can shortchange yourself if you jump in without careful thought and analysis.
"The optimal Social Security benefit commencement age varies widely for each individual and each couple," Rausser said. "The variables that need to be factored into the equation include marital status, level of earnings, availability and amount of other retirement income sources, age, health status and cost of living in retirement."
10. Claim Early If You’re in Poor Health
Delaying benefits means larger benefits, but only if you live long enough to collect them. If you are 62 years old and in very poor health, consider claiming your benefits immediately and don't be seduced by the financial incentives of waiting.
Be realistic about your life expectancy. The longer you are likely to live, the more reason you have to delay receiving benefits.
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11. Delay Benefits If You’re in Good Health
The earliest age at which you can retire is 62, some four or five years before your full retirement age. But you'll pay a price for early retirement in the form of a reduced benefit amount.
If your full retirement age is 66 but you retire at age 62 in 2018, you'll get 70.8 percent of your full benefit.
12. Hold Off on Benefits to Earn More
Early retirement cuts your benefits, but late retirement increases them. Consider waiting until a few years after your full retirement age to start drawing Social Security benefits. For each year you delay — up to age 70 — your benefit goes up by 8 percent.
That means that if your full retirement age is 66 and you delay getting benefits until age 70, your benefit amount would be 32 percent higher. If the benefit is $2,000 a month, the extra 32 percent amounts to an additional $640 a month.
13. Get a Bigger Check With Compounded COLA Benefits
Every year, the Social Security administration calculates and applies a cost-of-living adjustment to Social Security benefits. These are built into your benefits starting the year you turn 62. The COLA rate for 2018 is 2 percent.
If you delay receiving benefits past your full retirement age, you get compounded COLAs. For example, if you wait until age 70 to seek benefits, you would get eight years of compounded COLAs based on the full retirement age benefit.
14. Get Help From an Expert
If you're agonizing about the best course of action for you and your spouse to take when it comes to Social Security, you might want to consult with an expert. The best advice for someone who is uncertain is to seek help from an advisor or specialist, said Rausser. These specialists can guide you through the many choices available and help you come up with the best strategy for collecting Social Security benefits.
15. Claim Social Security Benefits as a Spouse
You qualify for Social Security benefits once you earn Social Security wages for 10 years. But if you're married to a high earner, you might be better off claiming as a spouse.
You'll have to wait to start claiming spousal benefits until your spouse takes his or her benefits. If claimed at full retirement age, your Social Security benefits will be half of whatever your spouse gets.
16. See If You Qualify for ‘Restricted Application’ Claims
This rule lets you apply for your spousal benefit while allowing your individual benefit to grow until you reach 70 years old. At that point, you can switch over and claim your higher individual benefit.
The restricted application rule was tightened recently, but you can still take advantage of this strategy if:
- You were born on or before Jan. 1, 1954
- You are eligible both for an individual benefit and a spousal benefit, and
- You have reached full retirement age.
17. Coordinate Benefits With Your Spouse
If both you and your spouse are eligible for Social Security, be sure to come up with a strategy that works for both of you. This depends on your other retirement assets and whether one or both of you are currently working. One strategy for a couple with Social Security benefits is to take the smaller benefit early while delaying the larger benefit. This maximizes your couple's benefits while still getting some monthly income earlier.
18. Delay the Higher Earner’s Benefits Until 70
High earners might want to wait until age 70 to take their benefits, particularly if they're married, said Rachel Sheedy, editor of Kiplinger's Retirement Report.
"By waiting until age 70, you earn 8 percent a year in delayed retirement credits for every year you wait to claim benefits past full retirement age," she said. "If you can't wait until age 70, the longer you can wait, the bigger your benefit will be."
19. Maximize Potential Survivor Benefits
The strategy of delaying the higher earner's benefits until 70 is particularly helpful in maximizing benefits to the survivor, said Sheedy. If you're married, one of you will probably outlive the other. If you delay the higher benefit and let it grow as much as possible, that benefit will last the lifetime of both spouses.
If the lower earner dies first, the higher-earning spouse retains the bigger benefit. If the higher-earning spouse dies first, the other will be entitled to a survivor benefit equal to the higher earner's.
20. Claim Benefits as a Surviving Spouse
If your spouse dies before you do, you can claim a survivor benefit when you are 60 years old. Hold off on claiming Social Security benefits until you reach full retirement age if you can, though. You'll get 100 percent of what your spouse received at the time of his death. This is to your advantage if the amount exceeds what you would receive in individual benefits.
21. Claim Benefits as a Divorced Spouse
If you are divorced and have not remarried, you might be able to get Social Security benefits as an ex-spouse. Even if your former spouse is remarried, you can still claim spousal benefits based on his work history if your marriage lasted a decade or longer.
It's possible to claim spousal benefits at age 62, but wait until full retirement age if you can. The payoff: You'll get a full 50 percent of whatever your ex-spouse receives. If you remarry, it nixes this strategy, but a second divorce or an annulment reopens it as a possibility.
22. Don’t Let Your Ex-Spouse Thwart Your Benefits
Ex-spouses can cause havoc in many areas of your life, but they have no voice in your Social Security benefits — so don't let them tell you otherwise. If you meet the qualifications, you can claim benefits as an ex-spouse.
You don't have to negotiate with or even tell your spouse. Simply show the papers to prove to the Social Security Administration that you were married for 10 years or more.
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23. Make Up for Low-Earning Years
The average Social Security benefit in 2018 is $1,404 per month with COLA, but some people get a lot more — up to $3,698. Benefits are based on your highest 35 years of earnings, which means you can work the system a little. If your top 35 years include one or two in which you earned very little — like a minimum wage job during college — you can make up for those low-earning years. Just put in a few extra higher-wage years before claiming Social Security benefits.
24. Change Your Mind About Claiming — Only Once
Take all the time you need to decide whether you want to file for benefits now or wait for larger benefits later. Once you decide to tap into your benefits, it's not that easy to turn the tap off again. The current Social Security rules allow you to change your mind once if you:
- Are eligible for benefits
- File an application for benefits, then change your mind and want to withdraw the application, and
- File a request giving the reason for change within 12 months
You'll have to repay all the money you and others received under the original claim. You can only withdraw an application once in your lifetime.
25. Suspend Benefits Until Age 70
Another strategy for people who regret claiming benefits before age 70 is to suspend them. This is only possible for people who:
- Are receiving benefits
- Are already at full retirement age, and
- Are not yet 70 years old
Benefit suspension is not applied retroactively, but starts with the payment the month after you suspend. You can earn the 8 percent per year increase for each suspended year up to age 70, when your benefits begin again automatically.
26. Work Without Reducing Your Benefits
You can keep earning money without reducing your Social Security benefits as long as you play by the rules. You still get full benefits under these circumstances:
- You reach full retirement age, no matter how much you earn
- You reach full retirement age in 2018 and make $45,360 or less
- You reach full retirement age after 2018 and earn $17,040 or less
If you are under full retirement age and make more than the limits, you lose $1 in benefits for every $3 earned if you reach full retirement age in 2018, and $1 for every $2 earned if you reach full retirement age after 2018.
Don't worry too much, said Brannon Lambert, a retirement expert with Canvasback Wealth Management. When the Social Security administration withholds some benefits due to the earnings test, the withheld money is returned to your pool of funds. Your benefits will be recalculated and increased once you reach full retirement age.
27. Work to Boost Future Benefits
If you keep working for a few years after you reach full retirement age, those years can count toward your top 35 wage-earning years, according to Lambert. Any and all earnings subject to FICA taxes can count toward calculating your retirement benefit.
For example, say you are 68 years old, collecting Social Security benefits, working and earning good money. If those earnings constitute one of your highest 35 years of earnings, the agency will recalculate your benefits and make adjustments accordingly.
28. Learn to Speak Medicare
Medicare and Social Security are separate programs, but you should think of them as the intertwining roots of your retirement basics. Study Medicare provisions until you have the basics down and understand how they intersect with Social Security.
Consider arranging to have your Medicare premiums deducted directly from your Social Security benefits rather than paying out of pocket, said Lambert. The "Medicare Hold Harmless Provision" only applies to recipients who have their premiums deducted directly from their Social Security checks. It states that annual increases in Medicare Part B premiums cannot exceed the COLA adjustment for those recipients.
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29. Know How Much of Your Benefits Can Be Taxed
If you think that your Social Security benefits are not subject to federal income tax, you were right — up until 1984. At that point, Congress changed the law and made a portion of benefits taxable if a recipient makes a certain amount of income from other sources.
Here's how to figure out the portion of your Social Security benefits subject to tax:
- Add up all of your income other than Social Security
- To this, add half of your Social Security benefits for the year
If the resulting number is over $25,000 for someone filing single or head of household or $34,000 for married filing jointly, you could pay tax on up to 50 percent of your benefits. If the resulting number is over $34,000 for someone filing single or head of household or $44,000 for joint filers, you could pay tax on up to 85 percent of your benefits.
30. Consider Taxes When Scheduling Other Retirement Funds
You can't get rid of the federal tax rules that apply to your Social Security benefits, but you can manage the rest of your retirement assets in a way that avoids or reduces the tax. Here are a few things to keep in mind:
- Taxable IRA and 401k distributions count as income to push more Social Security benefits into the taxable category. Try to avoid taking these before you reach full retirement age.
- Roth IRA or Roth 401k accounts do not add to your income. Tap into these before you reach full retirement age.
- It's better to avoid withdrawing from retirement accounts if you're still working. The combination of wages plus IRA income will push you over the limit faster.
- Take IRA distributions earlier than needed if you haven't reached the income threshold that year.
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31. Watch for States That Tax Social Security Benefits
As if paying federal tax on your Social Security benefits wasn't bad enough, some states also tax them. In fact, 13 states tax Social Security: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia. Of course, you'll have to consider all of a state's taxes, not just income, to determine whether a state tax system works with your retirement budget.
"If you're going to move in retirement, consider moving to a state that doesn't have its own tax on Social Security benefits — the majority of them don't," Sheedy said.
32. Expats Should Watch for Foreign Tax Codes
Some retirees seek adventure or lower costs of living and become expats. Be sure to check out the tax system your new country of residence has in place — it might tax your benefits.
Many foreign nations impose taxes on Social Security benefits of expats in residence there, according to the Social Security Administration. Before you make the big move, contact that country's embassy in Washington, D.C., for information.
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33. Don’t Expect Big COLA Increases in Your Benefits
You might think that Social Security recipients are safe from price hikes because of the annual cost of living adjustment. But that isn't exactly true. The COLA is based on an inflation measure called the Consumer Price Index for Urban Wage Earners and Clerical Workers.
This measure doesn't necessarily incorporate costs that hit you hard, like out-of-pocket healthcare costs. Also note that the COLA for 2018 was just 2 percent.
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34. Watch for Changes in Social Security Laws
This might be the most important Social Security tip of all: Keep your eye on the ball. Every year, some provisions of Social Security change.
This year, the full retirement age crept up two more months toward its new normal of 67 years old. And the payroll tax earnings cap went up from $127,200 to $128,400.
35. Watch for Medicare Changes
Medicare is an essential part of most people's retirement plans, since it makes medical care affordable during the years seniors need it most. Medicare is even more difficult to change than Social Security, because the ramifications could be drastic, said David Peterson, managing director at United Capital.
"A reduction in Medicare not only impacts the recipient, but payments from Medicare are frequently the only thing that keeps hospitals, particularly rural hospitals, solvent," he said. Still, Medicare is the focus of intense scrutiny and is expected to be a focal point of healthcare reform efforts.
36. Know That the Social Security Trust Fund Is Going Broke
Social Security benefits are paid from the Social Security trust fund, which is funded by Social Security taxes. By 2035, those incoming taxes will be enough to pay for only 75 percent of scheduled benefits, according to the Chief Actuary of the Social Security system.
The cause of the problem is an aging population, with birth rates falling. This makes it likely that some adjustments to taxes or benefits will be enacted to restore solvency for the Social Security program.
37. Realize Younger Workers Should Expect Changes
If it makes you feel any better, experts are just as much in the dark as you are about possible changes to the Social Security program. Peterson guessed that any changes would most likely focus on younger people entering the workforce, though.
"If there are changes, I suspect they would affect younger Americans, such as perhaps delaying the age at which someone currently 45 years old could collect benefits," he said.
38. Bet Against Changes Impacting Retirees
Peterson said that older Americans probably have less to worry about with legislative changes to Social Security benefits. "Historically, Congress has never made any changes to Social Security that impacted anyone even close to approaching retirement," he said.
This makes sense because it's important to have enough time to plan for your future. If you're nearing the age where you can receive Social Security Benefits, you might not have sufficient time to adjust your plan. If you're younger, you can make changes to your lifestyle to help offset the negative impacts from any change to Social Security.
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39. Expect the Social Security Administration to Help You
Although you might have some challenging decisions to make, applying and starting your Social Security benefits should not be a daunting process. The agency is experienced at processing applications — they receive some 20,000 a day, said Peterson.
"The Social Security Administration is very adept at getting recipients their entitled benefits," Peterson said. "It's important to note that the Social Security Administration is not the Internal Revenue Service. The administration's purpose is to help Americans collect benefits."
40. Don’t View Social Security in Isolation
Social Security should be just one part of your retirement plan. Peterson suggests looking at Social Security as one piece of a pie that includes pensions, 401k plans and individual savings. If you make decisions about Social Security benefits without the other aspects of retirement in mind, you might eventually regret it.