It’s important to take maximum advantage of your Social Security benefits. The problem, though, is that the program is complicated, and it’s easy to miss out on benefits that are available or aspects of the program that can take away benefits.
In particular, there are three things that a lot of people don’t realize about Social Security. Just a little simple learning can potentially prevent you from making costly mistakes.
1. Know when your benefits have maxed out
Different benefits have different governing rules when you’ve maxed out the amount you can get. In general, waiting can make the size of your Social Security checks get larger, but there’s almost always a point at which there’s no further reward from putting off taking your benefits any longer.
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For retirement benefits, delayed retirement credits stop accruing at age 70. Therefore, waiting beyond 70 will never get you a larger monthly payout and will just mean missing out on checks that you’d otherwise be entitled to receive.
However, the rules are different for spousal benefits. Delayed retirement credits aren’t available with spousal benefits, so the amount of your monthly check will max out when you reach your full retirement age, which for most people retiring recently is between 66 and 67. In this case, the only time it makes sense to wait beyond full retirement age is if your own retirement benefit will potentially be larger than any spousal benefit to which you’re entitled.
2. If you’re divorced or remarried, know how Social Security works
Many people are surprised to learn that Social Security benefits are often available for divorced spouses. As long as you were married for 10 years or longer before you divorced, you’re generally eligible to receive spousal or survivor benefits based on your ex-spouse’s work record. However, those who didn’t reach the 10-year threshold don’t typically qualify for any payments on an ex-spouse’s record.
Once you have those benefits, though, you can lose them in some cases if you remarry. For spousal benefits while your ex-spouse is still alive, remarrying at any age will cause you to lose the benefits you’re receiving based on your ex-spouse’s work history. Instead, you’re expected to make claims based on the work history of your new spouse.
Survivor benefits work differently. Even if you remarry, you can keep collecting survivor benefits based on an ex-spouse’s work history, as long as you waited until age 60 before remarrying. Get remarried earlier, though, and you’ll forfeit those survivor benefits.
3. Don’t forget about the IRS
Another often-neglected fact about Social Security is that if your income is high enough, a portion of your benefits can be subject to income tax. Specifically, the Internal Revenue Service takes one-half of your Social Security benefits and adds in most other sources of income.
If the total exceeds $25,000 for single filers or $32,000 for joint filers, then up to half your benefits could get added to your taxable income. Go above higher thresholds of $34,000 for singles and $44,000 for joint filers, and the amount of benefits you have to include in taxable income can rise to as much as 85%.
To control for this, keep an eye on your other sources of income, especially optional distributions from retirement accounts that can boost your taxable-income figures. If you can make changes that improve your tax picture, they can also have the effect of making less Social Security subject to income tax.
Get the Social Security benefits you deserve
Getting the most from Social Security is critical for your financial security. Knowing about these benefits and the potential pitfalls of getting them wrong can put you in a better position to avoid costly mistakes.
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