What Should I Know Before Starting Social Security?

Since you began working, Social Security has recorded your reported earnings under your name and Social Security number. Social Security updates your record each time your employer (or you, if you are self-employed) reports your earnings. Your earnings determine your benefit amount.

It is not necessary to become an expert on Social Security before starting to take benefits. However, having a good understanding of how things work could make a difference in your household income. Simply put, if your earnings are wrong, you may get less money than you are entitled to.

Start by Checking Your Earnings Records

In the past, Americans received a yearly paper statement of records and benefits. Today, you will need to create a “my Social Security” account to review your earnings and benefits information. It is easy enough to do, so do not delay.

There Is No Time Limit on Correcting Earnings Errors

The information can be found in earnings records, which can be seen in tax returns or W-2 forms. The exception to this is self-employed earners, and their limit is tight. They have exactly three years, three months and 15 days to correct any earnings reports.

Routinely Checking Benefit Amounts Is Smart for Planning

Routinely checking benefit amounts is smart for planning household cash flow in retirement. Today’s statements provide estimates of monthly benefits every year from age 62 to 70, including full retirement age.

A Critical Data Point: Your Full Retirement Age

A critical data point for Social Security benefits is your full retirement age, or FRA. This is the age when you can receive your full benefit retirement amount, determined by the year you were born. All of this information is available on the Social Security website.

You Do Not Have to Wait to Reach FRA to Start Collecting

You can file for benefits anytime between age 62 and 70, but if you decide to start taking benefits before FRA, the monthly amount is reduced permanently. On the other hand, if you delay benefits until after FRA, you are eligible for delayed retirement credits and may see an increase in your monthly benefit. The choice is yours, but it is better to make an informed decision that best suits your needs.

Social Security Benefits Were Never Intended as Sole Retirement Income

The goal is to replace about half of a low earner’s pre-retirement salary, about 40% of an average earner’s pre-retirement salary and about a third of a high earner’s pre-retirement salary.

Benefits Calculation

Benefits are calculated on the monthly average of the top 35 highest earning years. It is really that simple. If you have not worked for 35 years, zeros are used for those non-working years, which lowers the monthly average and by extension, the monthly benefit.

Voluntary Payment Suspension Option

There is an option to start collecting before FRA called the voluntary payment suspension. If you have started taking benefits before FRA, you can voluntarily request to suspend retirement benefits at your FRA and wait to receive benefits at a higher amount. This request can be made as many times as you wish between FRA and age 70. Be aware that if you suspend your own benefit, anyone who receives a benefit on your work record will have their benefits suspended as well, except for divorced spouses.

Strategic Planning for Couples

If spouses have different income levels, it often makes sense for the higher earner to wait to collect until age 70. However, if the higher earner dies after starting benefits at age 70, the surviving spouse will receive the deceased’s age 70 benefit.

Key Takeaway

Understanding the basics of Social Security can help you maximize your benefits over the course of your retirement. If you have questions about how Social Security fits into your broader retirement and estate plan, contact an experienced estate planning attorney to discuss your options.