Most Americans look forward to the financial support that Social Security provides in retirement. Yet if you want to make the most of your Social Security benefits, it pays to get to know the ins and outs of the program before you file. If you don’t, you might not actually be ready for Social Security, and claiming could be a big mistake. Here are some questions to ask yourself.
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1. Do you have 35 years of work history?
Social Security benefits are based on your average earnings over a 35-year career. If you haven’t worked that long, then the Social Security Administration adds in zeros for the missing years. Therefore, if you want the highest benefits possible, working an extra year will replace some of those zeros with larger figures that will boost your monthly check.
Even if you have worked for 35 years, working longer can still result in a benefit increase in some cases. If your income currently is more than the lowest-paying year of your career after adjusting for inflation, then continuing to work will result in an increase to your check. It won’t be as big a boost as replacing a zero year, but it can still make an important difference to your retirement income.
2. Has your spouse filed for benefits yet?
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Many married retirees are surprised to learn that they aren’t entitled to benefits based on their spouse’s work history until their spouse actually files for retirement benefits. That can be a real problem for couples where the younger spouse has been the primary wage-earner throughout their married lives, because in those cases, spousal benefits can be the sole source of financial support for the older, nonworking spouse. The restriction on spousal benefits can force older spouses to wait longer than desired to collect Social Security benefits.
For example, if you’re turning 62 but your spouse is 59, then you can’t even consider filing for spousal benefits based on your spouse’s work history until your spouse becomes eligible to file for retirement benefits three years from now. Even then, if your spouse prefers to wait rather than accepting lower benefits by filing earlier than full retirement age, then you still wouldn’t be able to get spousal benefits. Only once your spouse files can you collect spousal benefits.
3. Will the SSA take away some of your benefits?
If you’re still working and haven’t yet reached full retirement age, then you run the risk of losing some of your Social Security benefits if you file early. There are limits on how much money you can make and still keep all of your monthly Social Security checks. Go above that limit, and you’ll lose some of your hard-earned benefits.
Specifically, if you make more than $16,920 in 2017 and will be under full retirement age all year, then Social Security will take away $1 in benefits for every $2 you make above the threshold. For those who reach full retirement age during 2017, a higher limit of $44,880 applies, and that amount is only relevant for the part of the year before you hit your full retirement age.
Bear in mind that the money you forfeit has a corresponding positive trade-off. For every full month’s worth of your benefits you lose, you’ll be treated as having retired an additional month later than you actually did. That will boost your monthly payment slightly in the future, letting you earn back the lost income gradually over time. Nevertheless, many might choose simply to retire later rather than facing even the temporary loss of benefits that this provision imposes on Social Security recipients.
Be smart about Social Security
After waiting a lifetime, you might be impatient to start your Social Security benefits as soon as possible. However, if you truly want to make the most of Social Security, think carefully about whether you’re truly ready. In some cases, it will pay off to wait a bit longer.
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