6 Social Security Tips

Pension WorryAccording to Social Security Administration (SSA) statistics, Social Security benefits account for about 36 percent of retirement income for the average American. One of the biggest mistakes today’s retirees can make is to underestimate the importance of Social Security in their retirement strategies.

1. Your Age Affects the Benefit You Will Receive

62 is the earliest age that you can file for Social Security (unless you qualify for disability), but you won’t be able to collect your full benefit then. Instead, the SSA reduces those benefits by either 25 percent if your full retirement age is 66 or 30 percent if it’s 67. So, if your full monthly benefit at age 66 were $1,000, you’d only receive $750 each month if you started collecting at age 62. That reduction in benefits will be permanent.

If you can afford to wait until your full retirement age, you’ll be eligible for 100 percent of your Social Security benefit. If you can afford to wait even longer, your benefit will increase by up to 8 percent every year until age 70, permanently. So, if your basic benefit were $1,000 at your FRA of age 66, it would increase to $1,320 per month or 132 percent of your benefit by waiting until age 70 to take it. If you were born after 1942, you’ll qualify for the 8 percent credit each year.

2. The Right Social Security Strategy Could Be Worth Hundreds of Thousands of Dollars Over Your Lifetime

There is no perfect time to file for benefits, but choosing the right claiming strategy can radically affect how much you are able to collect over your lifetime. Many Americans are forced to claim early benefits for financial reasons, but, if you can afford it, delaying Social Security benefits could mean collecting significantly more over the course of your life. Ultimately, your personal Social Security strategy will depend on many personal factors like taxes, marital status, age, health, and other sources of income. It’s a good idea to discuss your situation with a financial professional who can analyze your situation and offer personalized advice.

3. You Can Work and Collect Social Security, But it Might Affect Your Monthly Benefit

Many Americans are continuing to work well into their retirement years. While the government allows you to work and collect Social Security benefits, your benefits may be reduced if you are below your full retirement age.

In 2015, if you are over 62, but younger than your FRA, you will lose $1 of your benefit for every $2 you earn over $15,720. Starting with the month you reach full retirement age, you will start receiving benefits with no reduction, even if you keep working. Once you reach your FRA, the SSA will recalculate your benefit and give you credit for any benefits that were withheld while you were working. Keep in mind that you must pay Social Security and Medicare taxes as long as you are earning income.

4. Social Security Benefits Are Taxable

Unfortunately, retirement doesn’t mean retiring your worries about taxes. If you collect substantial income from sources like wages, investment income, rental income, or any source that you report on your tax return, you will very likely owe taxes on your Social Security benefits. The tax rate you’ll pay depends entirely on your overall income bracket since Social Security gets treated like ordinary income.

However, there are strategies that may help you maximize your income while reducing taxes. For example, one method is to take as much income as possible from sources that are excluded from the “provisional income” that the SSA uses to calculate the taxation of your Social Security.

5. Married? Don’t Forget About Spousal and Survivor Benefits

Married couples need to think about how their Social Security claiming strategies will affect their spouse’s benefits and income in retirement. This issue is especially important when one spouse is significantly older than the other or earned more during a career. Your spouse’s benefits are based on your personal benefit, which means that the age at which you file for benefits will have a major impact on what your husband or wife is eligible to collect.

For many couples, maximizing a survivor benefit for a younger spouse is a major consideration. Since a survivor who has reached FRA will be eligible for 100 percent of the primary worker’s benefit, he or she will be able to take advantage of any delayed retirement credits and cost-of-living adjustments that the primary earner accumulates. Surviving spouses can usually choose between collecting a personal benefit or a survivor benefit, depending on which one is higher.

6.Advanced Filing Strategies Can Help Boost Your Lifetime Income

If you are married, there are some advanced claiming strategies that you and your spouse may be able to use to increase your lifetime benefits. Keep in mind that factors like taxes, age differences, life expectancy, retirement assets, family status and income all affect Social Security claiming strategies and can reduce their advantages to you. No strategy can be right for everyone and it’s important to consider your entire financial picture when making decisions.

File and Suspend is a very popular strategy in which the higher earning spouse files for benefits at his or her FRA, and then suspends the claim. Filing for benefits allows the spouse to collect spousal benefits while the higher wage earner’s benefits continue to accumulate credits.

File and Suspend Plus allows the higher earner to file and suspend at his or her FRA, enabling the spouse to collect a spousal benefit when he or she reaches full retirement age. Both spouses will collect their higher personal benefits once they turn 70. The benefit of this strategy is that it maximizes household Social Security income at every stage and also increases the survivor’s benefit.

The Spousal Benefit Change-Up is a scenario in which the lower earner claims benefits at full retirement age, allowing the higher earner to claim a spousal benefit while his or her personal benefit continues to accrue. At age 70, the higher earner switches to collecting his or her personal benefit.