(Dan Caplinger)
It is important to take advantage of Social Security benefits. The problem, however, is that the program is complex, and it’s easy to overlook benefits or aspects of the program that may take away benefits.
In particular, there are three things that many people don’t know about Social Security. A little simple learning can save you from making costly mistakes.
1. Know when your profit is
Different benefits have different rules governing when you have increased your earnings. In general, waiting can increase the size of your social security check, but there are always times when there is no additional reward for delaying receiving your benefits.
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For retirement benefits, the late retirement credit stops at age 70. So, waiting past 70 won’t get you a bigger monthly payment and just means you won’t get the paycheck you’re entitled to.
However, the rules for spousal benefits are different. Late retirement credit doesn’t come with spousal benefits, so your monthly bill will increase significantly once you reach full retirement age, which for most recent retirees are between 66 and 67 years old. In this case, the only time it makes sense to wait beyond retirement age is if your retirement benefits are likely to be greater than the benefits of your eligible spouse.
2. If you are divorced or remarried, find out how Social Security works
Many people are surprised to learn that Social Security benefits are often available to divorced spouses. If you were married for 10 years or more before your divorce, you can generally get spousal or survivor benefits based on your ex-spouse’s employment record. However, those who have not reached the 10-year period are not eligible for payments on the record of the ex-spouse.
Once you get these benefits, you can lose them in some cases if you remarry. For spousal benefits if your ex-spouse is still alive, remarrying at any age will cause you to lose benefits based on your ex-spouse’s work history. Instead, you are expected to make a claim based on your new spouse’s work history.
Survivor benefits work differently. Even if you remarry, you can still collect survivor benefits from your ex-spouse’s work history, as long as you wait until age 60 to remarry. But if you marry early, you will lose the benefits of living.
3. Don’t forget about the IRS
Another often overlooked fact about Social Security is that if your income is high, a portion of your benefits may be subject to income taxes. In general, the Internal Revenue Service takes half of your Social Security benefits and helps with most other sources of income.
If the total is more than $25,000 for a single filer or $32,000 for a joint filer, up to half of your benefits may be included in your taxable income. Go over the higher thresholds of $34,000 for singles and $44,000 for partners, and the amount of benefits you must include in your taxable income can go up to 85%
To manage this, keep an eye on your other sources of income, especially optional distributions from retirement accounts that can increase your income. If you can make changes that improve your tax picture, you can have the effect of reducing your Social Security taxes.
Get the social security benefits you deserve
Getting the most out of Social Security is essential to your financial security. Knowing these benefits and the potential pitfalls of mistaking them can put you in a better position to avoid costly mistakes.
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