The rules and options for claiming Social Security benefits can be complex. By educating yourself about Social Security, you can help ensure that you claim the maximum amount to which you are entitled, under the scenario that best meets your needs. Here are five things you need to know about Social Security.
1. Know Your “Full Retirement Age” for Social Security
Your age when you collect Social Security has a big impact on the amount of money you receive. For people born between 1943 and 1954, full retirement age is 66. It gradually climbs toward 67 if your birthday falls between 1955 and 1959. For those born in 1960 or later, full retirement age is 67. You can always collect Social Security as soon as you turn 62 but taking benefits before full retirement age results in a permanent reduction – potentially as much as 30% of your benefit if your full retirement age is 67.
Age also comes into play with kids: Minor children of Social Security beneficiaries can be eligible for a benefit. Children up to age 18, or up to age 19 if they are full-time students who haven't graduated from high school, and disabled children older than 18 may be able to receive up to half of a parent's Social Security benefit.
2. Know How Benefits Are Determined
To be eligible for Social Security benefits, you must earn at least 40 "credits." You can earn up to four credits a year, so it takes ten years of work to qualify for Social Security.
Your benefit is based on the 35 years in which you earned the most money. If you have fewer than 35 years of earnings, each year with no earnings will be factored in at zero. The benefit isn't based on 35 consecutive years of work, but the highest-earning 35 years. So, if you decide to phase into retirement by going part-time, you won't affect your benefit at all if you have 35 years of higher earnings. But if you make more money, your benefit will be adjusted upward, even if you are still working while taking your benefit.
There is a maximum benefit amount you can receive, though it depends on the age you retire. For someone at full retirement age in 2018, the maximum monthly benefit is $2,778. You can estimate your own benefit by using Social Security's online Retirement Estimator.
3. Know the Benefit of Being a Spouse
Marriage brings couples an advantage when it comes to Social Security. Namely, one spouse can take what's called a spousal benefit, worth up to 50% of the other spouse's benefit. Put simply, if your benefit is worth $2,000 but your spouse's is only worth $500, your spouse can switch to a spousal benefit worth $1,000 -- bringing in $500 more in income per month.
The calculation changes, however, if benefits are claimed before full retirement age. If you claim your spousal benefit before your full retirement age, you won't get the full 50%. If you take your own benefit early and then later switch to a spousal benefit, your spousal benefit will still be reduced.
Note that you cannot apply for a spousal benefit until your spouse has applied for his or her own benefit.
4. Divorce a Spouse, Not the Benefit
Just because you're divorced doesn't mean you've lost the ability to get a benefit based on your former spouse's earnings record. You can still qualify to receive a benefit based on his or her record if you were married at least ten years, you are 62 or older, and single.
Like a regular spousal benefit, you can get up to 50% of an ex-spouse's benefit -- less if you claim before full retirement age. And the beauty of it is that your ex never needs to know because you apply for the benefit directly through the Social Security Administration. Taking a benefit on your ex's record has no effect on his or her benefit or the benefit of your ex's new spouse. And unlike a regular spousal benefit, if your ex qualifies for benefits but has yet to apply, you can still take a benefit on the ex's record if you have been divorced for at least two years.
Note: Ex-spouses can also take a survivor benefit if their ex has died first, and like any survivor benefit, it will be worth 100% of what the ex-spouse received.
5. It Can Pay to Delay
Once you hit full retirement age, you can choose to wait to take your benefit. There's a big bonus to delaying your claim -- your benefit will grow by 8% a year up until age 70. So, if you're your Full Retirement Age is 66, waiting till age 70 will increase your benefit by 32%! Any cost-of-living adjustments will be included, too, so you don't forgo those by waiting.
While a spousal benefit doesn't include delayed retirement credits, the survivor benefit does. By waiting to take his benefit, a high-earning husband, for example, can ensure that his low-earning wife will receive a much higher benefit in the event he dies before her. That extra income could make a big difference for a widow whose household is down to one Social Security benefit.
Investment advisor representative of and investment advisory services offered through Garrett Investment Advisors, LLC., a fee-only, SEC-registered investment advisor. Tel: (910)-FEE-ONLY. Fialkow Financial Planning may offer investment advisory services in the States of Florida and Texas and in other jurisdictions where exempted.
This communication has been provided to you for informational purposes only. Although information in this presentation has been obtained from and is based upon sources that Garrett Investment Advisors, LLC believes to be reliable, Garrett Investment Advisors, LLC does not guarantee its accuracy and it may be incomplete or condensed. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.