Social Security will provide most Americans a significant portion of their retirement income. A lot of today’s retirees drastically under estimate how much of an impact their social security will have on their retirement.
Here are the top 5 things you should know about social security benefits.
Your Age: To collect your Social Security, the earliest age you can retire is 62 unless you qualify for social security disability benefits. If you are not 66 years old when you start to collect your benefits you will only receive 75% of what you should have collected if you retired at age 66. Basically, the Social Security Administrations penalizes you 25% because you’ll be receiving benefits for four additional years.
You can begin to collect the full 100 percent of your benefits at full retirement age, which is age 66 for anyone born between 1943 and 1954, 66 plus a two-month delay for those born between 1955 and 1960, and age 67 for those born after 1960.
If you can afford to wait to retire, you should wait until your full retirement age so you’ll be eligible for 100% of your Social Security benefits.
Social Security strategy: Many retirees have a hard time answering this question, “What’s the right time for me to file for benefits?”
There is no right or wrong answer here. The truth is it ultimately depends on your personal situation. Choosing the strategy to claim could drastically change the amount you’re able to collect over your lifetime.
If you or your partner expect to live past the ripe old age of 80 and have a separate retirement account you can live off of before claiming your benefits, you’d be better off waiting. The longer you wait, the more your payout will be. There are situations where you just need to file. For Example:
- You are not in the best of health
- Your partner is not in the best of health
- You need the money
• Yes, you do still pay taxes: Uncle Sam will always get his piece. Your social security checks are federally taxed.
If you collect income from working, or investing in real estate, or any other source that is reported as income on your tax return, you will most likely owe some taxes on your social security payout.
The good thing is; you’ll never have to pay more than 15% of your payout. Since SS is considered as income, your tax bracket will be based on your over income reported on your tax return.
• Survivor Benefits: Most couples need to talk about how their Social Security claiming strategies will affect both of their retirement incomes.
Couples with one partner significantly older than the other, or has earned much more during their career should especially have this talk. When you claim together, you impact each others collection amounts. It’s best to know all the facts before claiming. Consult with an attorney or accountant to be sure.
• Filing in Advance: To increase your lifetime benefits, and you’re married, you have some optional strategies to consider taking when filing for your benefits.
A very popular strategy is known as “File and Suspend”. This is when one partner files for full benefits at full retirement age and then suspends the claim.
While suspended, the higher wage earners benefits continue to earn credits while your collecting the other partners benefits.
The trick of this is to collect the lower earners benefits at his/her full retirement age giving the higher earners claim time to accrue more benefits before claiming.
Every strategy will not work for every retiree, which is why it’s so important to take the time to analyze your needs and test possible scenarios.
The higher earner then switches to collecting his/her larger benefit at the age of 70.
Although every strategy doesn’t work for every retiree, these five tips should help you make some decisions on when and how to file your claim for social security benefits.