As retirement approaches, more people begin thinking about their Social Security benefits. But waiting until retirement is on the horizon to figure out the rules and requirements could hurt your financial future. You could file too early and receive smaller payments, for example, or wait too long to get the most impact from your benefits. You also should know how to take advantage of benefits for spouses, ex-spouses and survivors.
It’s important to be prepared so you can make the right choices for your life after you stop working full-time. Here are answers to five common Social Security questions that can help you maximize your benefits in retirement.
The short answer is as early as 62, but the longer you wait, the higher your benefit will be. The amount depends on your age when filing:
Age 62: You can claim a percentage of your benefit.
Full Retirement Age (FRA): You are eligible to receive full benefits. Social Security calls this your full retirement age, and it depends on the year you were born.
Age 70: You are eligible for maximum Social Security benefits.
1943-1954 – Age 66
1955-1959 – Age 66 + 2 months every year after 1954
1960 & after – Age 67
Filing at 62 will reduce your full retirement age benefit by 25-30%. Delaying until age 70, you’d be eligible for up to 132% of your full benefits, depending on your full retirement age.
So, when should you claim benefits? Besides age, consider other reasons to file earlier or later:
Assumes Full Retirement Age is 66. Increased benefits for delaying Social Security max out at age 70.
If you're married, or ever have been, it's important to consider whether your spouse or ex-spouse's benefits can boost your own Social Security payments. This can be especially important for women, considering that they are more likely to take time away for work to raise children and that men’s wages are higher on average than women’s pay.
Let's go through each one.
Spouses are eligible to receive 50% of the primary worker's benefit or their own benefit amount, whichever is higher.
Survivor benefits are similar, except the survivor receives either the deceased spouse's benefit or their own benefit, whichever is higher.
If you are divorced, you may be eligible for 50% of your ex-spouse’s benefits. If you’ve been divorced for at least two years and are both at least 62, you can receive your ex-spouse’s benefits even if they are still working, as long as they qualify.
Additionally, children up to age 18 (19 if a full-time high school student) and disabled children (even if 18 or older) may be eligible for benefits. Benefits are generally available only to unmarried children.
Yes, although your benefits may be reduced depending on your full retirement age and your income. For 2021, here's how this would look:
| Age | Earnings Limit | Benefit Reduction |
|---|---|---|
| Before FRA | $18,960 | For every $2 over this limit, $1 is withheld from your benefit. |
| Year You Reach FRA | $50,520 | For every $3 over this limit, $1 is withheld until the month you reach FRA. |
Maybe. It depends on your income and whether you file single or joint taxes. A couple with a combined income between $32,000 and $44,000 may have 50% of their benefits subject to their regular tax bracket. The amount subject to tax rises to 85% if they earn more than $44,000.
To spread out the burden, you can ask the Social Security Administration to withhold federal taxes from your monthly benefit when you apply.
Calculating Combined Income
Your adjusted gross income
+ Nontaxable interest
+ ½ of your Social Security benefit
= Your combined income
Private creditors can't touch Social Security, but federal agencies can garnish the benefits. Child support, alimony, back taxes and home and student loan defaults can reduce your benefits.
Recently, unpaid student loans have had more of an impact. Between 2001-15, the government collected about $1.1 billion from Social Security recipients of all ages for unpaid student loans, according to a GAO study . While updated stats have not yet been published, that total is undoubtedly higher six years later.
If you have debt, it may be wise to pay off as much as you can before retirement to help preserve your benefits.
Social Security may be a large part of your overall retirement investing plan, so it's important to understand all your filing options before it's time to claim your benefits. You can contact the Social Security Administration up to four months before starting benefits, but you can review your options much earlier.
Socialsecurity.gov is a good resource, or you can call for an appointment at 1-800-772-1213. You can also find other articles about Social Security at americancentury.com.
This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.