René Nourse, CFP®
As you know, the population of the United States has been paying Social Security taxes for the majority of people’s working years. Unfortunately, despite this long-term commitment, few people have a solid understanding about their best strategies when it comes to applying for Social Security benefits. There are so many annoyance issues that people discover after they’ve filed. They wish they’d had a better understanding of the rules beforehand, and might have chosen a different benefit for a better pay-out date and rate. It’s especially critical to understand your Social Security options if you’re married, divorced, or widowed. You could be eligible to receive Social Security retirement benefits based on your spouse’s or former spouse’s benefits and, as a result, could opt to let your benefits grow and apply for them later.
One of the most important points I wish to share with you is that many folks do not know or understand what their Full Retirement Age (FRA) benefit is. As a result, many people (40% of women and 35% of men) apply for Social Security benefits at age 62, which is the earliest age one can apply for Social Security retirement income benefits. But people don’t realize that, by applying at age 62, their Social Security benefits will be reduced by 25% over their lifetime. In contrast, they could receive 100% of their benefits by waiting until they reach their FRA. In addition, at age 62, many people are still working full-time or part-time. And guess what? In 2021, once someone hits an income of $18,960, their Social Security benefit is suspended until they hit their FRA. Now, they will get that money back eventually, but they will have to wait until their FRA to receive it. Note that the amount of the income restriction changes each year with the tax code, but it applies every year until the FRA is reached.
Also, many people are not aware that Social Security income benefits count as taxable income. Just to keep this example simple, let’s assume that you’re at your FRA. For married couples in 2021, if your combined income is over $44,000, then 85% of your Social Security benefits are taxable. If you’re single and your income is over $34,000, then 85% of your Social Security benefits are taxable. Understanding these things right now is really important. Knowing what the rules are before you apply for benefits will help get you on track to meet your lifetime income needs and goals.
Last, but definitely not the least, is the most important recommendation: set up your Social Security account online—no matter what your age is. Having access to your Social Security account will provide you with an overview of all your benefits. These include not just retirement, but also disability and—God forbid—benefits payable to you and/or your minor children in the event your spouse passes away. In addition, it’s important to review and confirm that the historical income reflected on your Social Security statement is correct. This information is pulled from the IRS and sometimes there can be incorrect content. This can be especially critical for women, since we often have to take time off to have children and/or provide caregiving services for family members. Most of the time, women’s salaries are higher before they have to take time off to have and support their children’s lives and lower afterward.
Online access to your Social Security account also lets you keep track of your Social Security number to make sure it hasn’t been hacked or stolen. As we all know, the US has been impacted by major cybersecurity events in the past few years. By logging in to your Social Security account regularly, you can see if there has been any activity using your Social Security number. You can even elect to lock down your Social Security number in order to protect it.
Want to learn more? Watch my Smart Woman/Savvy Money webinar on this topic: Is Social Security Secure? You Betcha! I share some of the most important rules to help you make the best decisions for yourself—including how to determine your actual Full Retirement Age. So you, too, will be able to say: “You betcha! Because I made the right decisions.”
All the best!