When it comes to something as important as Social Security, it’s good to know how the system works so that you are getting as much from it as possible. From the age you choose to begin receiving your payments to how your payments will be taxed, there are a lot of important things to consider. Here are five key facts to remember as you think about Social Security and your retirement:
You can start taking Social Security payments as soon as you turn 62, but your benefits will be reduced 20 percent to 30 percent. That’s a big chunk, especially if you expect to spend many years in retirement. You might consider working a bit longer or relying on your retirement savings to help cover your living expenses until you can receive full benefits.
What’s Your “Full Retirement Age?”
1937 or earlier 65
1938 65 + 2 months
1939 65 + 4 months
1940 65 + 6 months
1941 65 + 8 months
1942 65 + 10 months
1955 66 + 2 months
1956 66 + 4 months
1957 66 + 6 months
1958 66 + 8 months
1959 66 + 10 months
1960 or later 67
As long as you’re 62, you have the option to take Social Security. If you continue to work between age 62 and your full retirement age, your benefit payments will be temporarily lowered, based on how much you earn. Say you earn $10,000 over the limit. Your benefits would be reduced by $5,000. If you make $20,000 over the limit, they would be reduced by $10,000. (The limit gets updated each year.) You essentially lose one dollar of benefit for every two dollars earned above the limit, which is roughly $14,160. (The limit gets updated each year.)
The good news is that you don’t actually lose out on those benefits. Instead, your payment amount is recalculated so that you receive more money later on. It’s another way working in retirement can help stretch out your income over time.
You have to tell the Social Security Administration when you’re ready to start receiving monthly benefits. You can do that over the phone (1-800-772-1213), in person, or through the Social Security online application.
Whether you owe income tax on a portion of your Social Security benefits depends on your other income for the year. Generally, if your income exceeds $25,000 for an individual (or $32,000 for married filing jointly), you’ll have to pay federal income taxes on a portion of your benefits. The rules for state income taxes vary from state to state.
Let’s say your monthly benefits turn out to be three times as much as your spouses. (It’s a common scenario, especially in families where one spouse paused their career to stay home with the kids.) If your spouse waits until full retirement age to start getting benefits, those benefit payments will be raised so they equal half of yours.
After you die, your spouse will get either your monthly benefit check or hers whichever is more. And if you have disabled children, kids under age 19, or elderly parents who depend on you for at least half their income, they could receive “survivor benefits.”
Read more on the Social Security Administrations website.