The Social Security program is well-known but not always well-understood. Indeed, “America’s pension plan” has evolved over the years, therefore it may not look the same as it did when you began working.
Many people have questions about Social Security, especially as they begin approaching retirement. After all, who doesn’t want to boost their retirement savings? Read on for advice on some of the most common questions we get asked as financial advisors (don't miss the Social Security infographic at the end).
1. How Much Will My Social Security Benefits Be?
The simple answer: it depends. In general, Social Security benefits are based on your lifetime earnings. Your monthly payout is calculated using your top 35 years of earned income and varies based on when you start claiming. Visit SocialSecurity.gov to get an estimate based on your actual Social Security earnings record.
2. When Can I Claim Social Security Benefits?
Full retirement age, or FRA, is the age when you can begin collecting 100 percent of your Social Security benefits. If you start receiving those benefits earlier, the amount is reduced by a percentage for each month before your FRA.
FRA is not the same for everyone; here’s the basic breakdown:
- If your birthdate is between 1943 and 1954, your FRA is 66
- If you were born in 1955, it’s 66 and 2 months
- For anyone born between 1956 and 1959, FRA is 66 and 4 months
- For those born in 1960 or later, it’s 67
The earliest you can begin collecting benefits is age 62. But remember, the earlier you file, the lower your monthly check. For example, if your FRA is 67, starting to claim at 62 could reduce payment by as much as 30 percent.
3. What If I Wait to Collect Social Security?
Now for the good news. If you wait until after your FRA to start collecting Social Security, your monthly benefit amount will increase. For each year you wait from your FRA until age 70, you could earn 8 percent more in benefits.
The exact amount of increase depends on your FRA and the number of months by which you delay the start of your retirement benefits. Let’s say your FRA is 66:
- If you wait until 67 to start receiving your benefits, you'll get 108 percent of the monthly benefit amount because you delayed getting benefits for 12 months
- If you wait until 69, you'll get 124 percent of the monthly benefit because you delayed getting benefits for 48 months
Keep in mind the benefit increase stops at 70, so it doesn’t pay to wait any longer. Even if you do make it to age 70 before claiming any benefits, you won’t start receiving checks automatically. You have to file a claim with Social Security first!
4. Can I Collect Social Security Benefits from My Spouse?
Married or not, each individual qualifies for their own separate retirement benefits and the amount is not affected by marriage. Depending on the age at which you begin claiming, spousal benefits will be paid at 32.5 percent to 50 percent of your husband’s or wife’s full benefit amount.
While you can’t collect both your own retirement and spousal benefits at the same time, Social Security will pay you the higher of the two benefit amounts. Consider each partner’s work history, age, and overall financial picture to determine what’s best for you.
You may only qualify for spousal benefits if:
- Your spouse is already collecting retirement benefits
- You have been married for a minimum of one year
- You are at least 62 years old (if you are caring for a child who is under 16 or disabled, this rule does not apply)
5. What Are My Social Security Benefits If I Am Widowed?
If you are widowed, you may be eligible for survivor benefits based on your deceased spouse’s earnings. You can start receiving survivor benefits as early as age 60, at 71½ to 99 percent of the deceased person’s benefit amount. Or, wait until your FRA to claim and get 100 percent of your late spouse’s benefit.
FYI, remarriage won’t affect survivor benefits as long as you’re 60 or older. And don’t ignore your own benefits! Depending on your situation, it might make sense to claim survivor benefits today, even if they are lower than your own. Once you reach age 70, you can switch to your own benefits.
6. How Does Divorce Affect My Social Security Benefits?
If you are divorced, you may be wondering whether you can collect Social Security benefits from your ex. The answer is yes, if you meet certain conditions. First off, your former spouse must be eligible to receive Social Security retirement or disability benefits. If that’s the case, you can get Social Security benefits through them if you:
- Are at least 62 years old
- Remain unmarried
- Were married to them for at least 10 years
If you meet all these requirements, you can claim one-half of your ex-spouse’s full retirement benefit (or 100 percent if the ex passes away). You need to have your ex’s Social Security number or date and place of birth and parents’ names in order to apply for benefits on their work record.
Your claim does not affect your former spouse’s individual monthly benefits and they will not be notified when you file an application with the Social Security Administration.
7. Can I Still Receive Social Security Benefits If I Keep Working?
You can collect your Social Security benefits while you’re still working, with some deductions. For 2020, your benefit is reduced by 50% of what you earn above $18,240, if you claim before the year you reach your FRA. Once you reach your FRA, you can earn as much as your want without a reduced benefit.
As you can see, Social Security benefits get complicated quickly, and making the most of them requires a bit of strategy. But that’s no reason to miss out on this guaranteed income in retirement. A fiduciary financial advisor such as a Certified Financial Planner (CFP®️) will help you keep the facts straight as well as considering how this benefit fits into your bigger-picture retirement savings plan.
Are you in the midst of preparing for a successful retirement? And do you have a solid financial game plan? Get our 2020 Essential Retirement Guide to learn about the seven things you need to do before you retire.