20 Things to Know Before Claiming Social Security

Your decision about when to claim Social Security will have a big impact on your retirement security. While it may seem pretty easy to make this choice, the reality is that there’s a lot more to it than you might think.

You don’t want to be left with regrets — or with lower benefits than you could otherwise have received — so you need to know a lot of details about Social Security’s rules to make the best claiming choice. To help ensure you are informed and armed with the info needed to build a secure retirement, check out these 20 key things to know before claiming Social Security benefits.

1. You have a choice of when to claim retirement benefits

You can claim retirement benefits as early as age 62. You can also delay your claim, which will increase your benefit amount. Although you can technically delay as long as you would like, there is no benefit to delaying beyond age 70 because benefits don’t increase any further at that point.

2. You can potentially claim your retirement benefits, spousal benefits, or survivor benefits

Social Security does not just provide retirement benefits. Survivor benefits are also available if your spouse passed away and you are at least 60, or at least 50 and disabled. Survivor benefits can also be claimed at a younger age if you are caring for a minor child of the deceased who is disabled or under 16.  Spousal benefits are also available based on your spouse’s work history and can be claimed once you are 62 years old.

3. You may still be entitled to spousal or survivor benefits after getting divorced

Spousal and survivor benefits are available to you if you were married for at least 10 years prior to divorcing. You cannot get spousal benefits if you remarried, although you can continue survivor benefits after tying the knot again as long as you don’t get married before age 60 (or age 50 if you are disabled).

4. You will need to claim benefits at full retirement age to get your standard benefit

Everyone has a full retirement age (FRA) based on birth year. If you want to get your standard retirement benefit, you will need to retire right at your FRA. Your FRA is:

• 67 if you were born in 1960 or later
• 66 and 10 months if you were born in 1959
• 66 and 8 months if you were born in 1958
• 66 and 6 months if you were born in 1957
• 66 and 4 months if you were born in 1956
• 66 and 2 months if you were born in 1955
• 66 if you were born between 1943 and 1954

5. Your standard benefit is based on average wages over 35 years

Your standard Social Security benefit is calculated using a formula that takes average wages into account.

Social Security keeps an earning record over time, with your earnings reported each year. Your earnings are then adjusted for inflation, and your average monthly indexed earnings are calculated over your 35 highest-earning years. That essentially means your average inflation-adjusted monthly wage in your 35 highest-earning years is calculated. You then get benefits equal to a percentage of that amount.

Working less than 35 years means years of $0 wages are factored into your benefit, so you’d likely want to avoid that. If you are earning a lot later in life, it’s also a good idea to keep working for more than 35 years if you can, so you can replace some lower earnings early years in your benefits calculation.

6. If you claim benefits before FRA, benefits are reduced

If you claim benefits prior to your FRA, your standard benefit is reduced.  The reduction equals:

• 5/9 of 1% for the first 36 months
• 5/12 of 1% for any month prior

This adds up to around a 6.7% reduction for each of the first 3 years of an early claim, and a 5% benefits reduction for any prior year before that. If you claim benefits at 62 instead of your FRA os 67, for example, that would add up to a 30% benefits reduction.

7. Any reduction in your benefits due to an early claim is permanent

If your benefits are reduced because you claim them early, that reduction is permanent. Your payment does not increase again once you have hit your full retirement age.

8. If you claim benefits after FRA, benefits are increased

If you wait beyond your FRA to start benefits, your checks will increase. You can earn delayed retirement credits for each month you wait. Those are worth 2/3 of 1%, which adds up to an 8% annual benefits increase for each year you wait. These credits can only be earned until 70, though, so you don’t want to wait to claim benefits beyond that point.

9. Spousal benefits do not get bigger if you wait until after FRA

While spousal benefits shrink if you claim them before your full retirement age, they do not increase if you wait until after. The maximum spousal benefit you can receive is 50% of your spouse’s standard benefit. As a result, there is no benefit to waiting beyond your FRA to claim spousal benefits.

10. You can’t claim your spousal benefits until your spouse has claimed their retirement benefits

If you want to claim spousal benefits, your higher-earning spouse must have claimed their retirement benefits first. You cannot file for your spousal benefits until they do. You can get your own benefits (if you are eligible for them), and then switch over to spousal benefits when your spouse eventually claims. This is a common strategy that many people use to maximize combined Social Security benefits.

11. You should do a break-even calculation before you claim benefits

When you are deciding on the right age to claim Social Security benefits, you should do a break-even calculation. This involves:

• Determining how much the benefit would be at the different claiming ages you are considering
• Calculating the income you give up if you wait to claim benefits
• Determining how long you’d have to earn the higher benefit to break even.

Say, for example, you were deciding between claiming at 62 or claiming at 67, and your standard benefit at 67 would be $2,000. Your reduced benefit at 62 would be 30% lower, so it would equal $1,400. If you collected a $1,400 benefit from age 62 to age 70, you would collect $84,000. If you waited, you would increase your monthly benefit by $600.  At a rate of $600 extra per month, it would take you 140 months ($84K/$600) or 11.67 years to break even. If you don’t think you’d live long enough, an early claim would be better. If you think you will live longer, a late claim would be the right choice.

12. If you are the higher earner and you file for benefits early, you will shrink survivor benefits

When one spouse passes away, the surviving spouse gets to keep the higher of the two benefits that were coming into the home. If you were the higher earner and you claimed benefits early, you would have shrunk your benefit. This means your spouse would get a smaller benefit than they otherwise could have if you die first.

13. You could temporarily forfeit some of your benefits if you claim them and work before FRA

If you claim Social Security benefits before your full retirement age, and you want to work, you could temporarily forfeit some of your benefits if you earn too much. Eventually, you would get it back in the form of higher future benefits, but you need to know that you can’t double-dip if you earn too much. After FRA, however, you can work as much as you want without your Social Security benefit being impacted.

14. You may be taxed on some of your Social Security benefits

Social Security benefits are partly taxable on the federal level once your provisional hits a certain threshold.  Provisional income is half of Social Security benefits, all taxable income, and some non-taxable income.

If your provisional income is above $25,000 for single filers or $32,000 for married joint filers, taxes begin to kick in. A small minority of states also tax Social Security benefits, although many jurisdictions are phasing these taxes out.

15. Medicare premiums are typically withdrawn from Social Security benefits

If you get insurance coverage through Medicare Part B, which most people do once they are 65, you will have premiums to pay. These are typically withdrawn from your Social Security check, so you may not get to bring the entire amount home.

16. You have better odds of maxing out lifetime benefits if you wait to claim them

Studies have shown that 7 in 10 retirees end up with more lifetime benefits if they delay their Social Security claim until 70. That’s because the penalties and credits system, which was created to try to equalize out lifetime benefits, was created a long time ago. As life expectancies have gotten longer, more people are outliving their projected lifespan and doing better than breaking even when they wait for a larger check.

17. Cost-of-Living Adjustments are based on a percentage of your benefit

Retirees get COLAs most years in order to help benefits keep pace with inflation. These are benefit bumps that happen when the Consumer Price Index for Urban Wage Earners and Clerical Workers shows prices are going up. Your COLA is based on a percentage of your benefit, so if you get a larger benefit, you’ll get a larger COLA.

18. Social Security’s trust fund is in trouble — but benefits won’t run out

Social Security has a trust fund, and it is facing financial trouble. It could run dry as soon as 2034 if the Social Security retirement and disability trust funds are combined. This would mean an automatic benefits cut because there would not be enough money to pay all that is promised. However, benefits could still be paid out of taxes collected from current workers. Around 81% of benefits would still be paid if the trust fund ran dry.

19. You can rescind a benefits claim within the first 12 months

If you claim Social Security and regret it, you can rescind your claim within the first 12 months. You will have to pay back the benefits you have received to date. This can still be a good option if it turns out you would have preferred to wait and increase your future payments.

20. You can’t live on Social Security benefits alone

Finally, you should know that you can’t live on Social Security alone. Your average benefits only replace around 40% of pre-retirement income, and you need to replace more than that percentage. You should work with a financial advisor to ensure you have enough income to supplement Social Security before you retire and are left with regrets.

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