You know your Social Security number, and you probably have a Social Security card. But unless you’re nearing retirement, you might not be familiar with Social Security benefits yet. Like any complex government program, Social Security has many components and rules. Learning more about Social Security retirement benefits helps make sure you get everything to which you’re entitled.
Navigating the ins and outs of Social Security can be tricky. Use the answers to these six common Social Security questions to start planning how to make the most of your benefits.
1. When Should I Start My Benefits?
It can be easy to apply for Social Security benefits, but knowing when to do it is a different story. The right time to take your SS benefits depends on many factors. The vast majority of recipients begin taking benefits sometime between the ages of 62 and 70. Your Social Security payments will increase the more you delay, up until the age of 70.
Traditional advice suggests taking it as soon as possible because the break-even point is so many years out, said Eric Nelson, financial advisor at Woloshin Investment Management in Medford, N.J. “What I believe is more important is to look at how Social Security benefits play into your overall financial plan,” said Nelson.
He said workers should figure out how much income they’ll need to live on during retirement and to examine their income from other sources. “In many cases, it pays to defer taking your benefits to a later age because of the increase in your annual benefits every year you defer,” Nelson said.
Taking your benefits at age 62 means a permanent 30 percent reduction from your full retirement benefit, according to the Social Security Administration. Meanwhile, taking your benefits at age 70 would net you about 32 percent more than taking them at age 66, said Nelson.
Deciding when to take Social Security benefits is a personal decision that you should make as part of a comprehensive retirement plan with your spouse as it might affect their spousal benefits down the road. Regardless of when you take them, however, make sure you apply for Medicare when you turn 65.
2. How Much Will I Receive in Benefits?
SSA bases how much you’ll receive on your lifetime earnings — and when you choose to receive benefits. Your full retirement age depends on the year in which you were born. For those born between 1943 and 1954, it’s age 66. For those born in 1960 or later, it’s age 67.
3. Will Working After I Retire Affect My Benefits?
If you retire before your full retirement age and continue to earn more than a certain amount of money in some type of work, Social Security will reduce your benefits. However, your benefits will increase when you reach your full retirement age to make up for benefits you had withheld due to your earnings. Once you reach full retirement age, you can earn as much as you like in income without being penalized.
If you receive a pension when you retire and it’s from a job that made Social Security payments on your behalf, it won’t affect your benefits. If your pension is from a public or government source, however, it will reduce your Social Security benefit.
4. Does Social Security Tax My Benefits?
The federal government might tax your Social Security benefits. If you file as an individual and your combined income is between $25,000 and $34,000, you might have to pay taxes on up to 50 percent of your Social Security benefits. Your combined income is your adjusted gross income added to both nontaxable interest and one-half of your Social Security benefits. If you make more than $34,000, up to 85 percent of your benefits might be taxed.
If you file a joint return with your spouse and your combined income is between $32,000 and $44,000, you might pay taxes on up to 50 percent of your benefits. Make more than $44,000, and you might be taxed on up to 85 percent of your Social Security benefits.
5. How Can I Increase My Benefits?
One way to increase your benefits is to work longer. “Don’t start collecting benefits until age 70, and make sure you work at least 35 years,” said Ty J. Young, CEO of Ty J. Young Inc. Wealth Management in Atlanta. “If you’re married, claim as dual earners, but make the switch at a later date to claiming the benefit separately so you’ll get the higher delayed benefit amount.”
Your Social Security benefit is calculated from your top 35 years of earnings, said Michael Pruitt, financial advisor at MBE Wealth Management in Sun Prairie, Wis. “If you don’t have 35 years of earnings, the years without earnings get replaced with a ‘zero,’ which will negatively impact your benefit,” said Pruitt.
If you find yourself in this situation, don’t panic: Pruitt says you can replace those “zeros” with “another year’s worth of work.” Doing so will increase your benefit. Working longer also will help by replacing low-earning years with higher-earning years. This might result in having to work a few years longer, but it can significantly boost your benefits.
6. What Is Supplemental Security Income?
The SSI program pays benefits to disabled adults and children, as well as people age 65 and older without disabilities who meet the financial limits. As with the Social Security program, SSI benefits are paid out monthly. The SSA administers both the Social Security and Supplemental Security Income programs.