Social Security can be one source of retirement income for you and your spouse. To maximize your benefits, you’ll need to make some key decisions and be aware of some common myths.
• Myth 1: Always take Social Security early. You can file for Social Security benefits as early as 62, but you could get 25 to 30 percent more if you wait until your “full” retirement age (likely between 66 and 67). You can receive even more if you wait until 70, at which point your benefits will “max out.” However, there’s no right time to file for everyone — it depends on your situation, including factors such as your life expectancy, employment, financial need and spousal considerations.
• Myth 2: When you claim Social Security won’t affect your spouse’s benefits. This is not true. How much you receive in Social Security can affect your spouse’s benefits while you are alive (spousal benefits) and after you’ve passed away (survivor’s benefits). Your spouse could receive up to half of your retirement benefit, offset by his or her own benefit, so the longer you work before collecting Social Security, the greater the potential spousal benefits. For survivor benefits, your spouse would receive 100 percent of your benefit or his or her own, whichever is larger, so when you file affects how much your spouse would receive if you pass away early. In any case, you’ll want to consult with the Social Security Administration about how much your spouse can receive, as his or her own benefits can also affect your decision-making.
• Myth 3: You can’t work during retirement and collect Social Security. Yes, you can. But if you start receiving Social Security before your full retirement age (likely between 66 and 67), you can only earn up to $18,240 in 2020 and still get your full benefits. Once you earn more than this, Social Security deducts $1 from your benefits for every $2 you earn. But during the year you reach full retirement age, you can earn up to $48,600 without your benefits being withheld. If you exceed this amount, $1 will be deducted for every $3 you earn during the months before you attain your full retirement age. Social Security will increase your benefits when you do reach full retirement age to adjust for the previous work-related withholdings. So, if you plan on working and receiving Social Security, it may not make sense to file if most of your benefits will be withheld. Once you reach full retirement age, you can earn any amount without losing your monthly benefits, although your benefits could still be taxed.
• Myth #4: Social Security will provide for all my needs in retirement. Social Security will provide about a third of pre-retirement income, on average, according to the Social Security Administration. Consequently, you’ll probably still need other sources of retirement income because Social Security alone most likely won’t be enough to meet your needs. So, throughout your working years, contribute as much as you can to your IRA and your 401(k) or other employer-sponsored retirement plan. Combining these income sources with Social Security can help improve your chances of enjoying the retirement lifestyle you’ve envisioned.
Karas is a financial adviser with Edward Jones in Sidney.