It pays to know all that you can about Social Security benefits. Considering that Social Security income is the foundation for financial security in most people’s retirement, the more knowledge you have, the better.
Here’s a list of five things that you should know about Social Security and how they impact your retirement years.
1. It Pays to Delay
For every month that you delay the start of your benefits beyond age 62, your benefit is increased. It’s not an insignificant increase either, as your benefit will grow by 8% per year up until age 70 and increase your lifetime payout by a significant amount of money.
Another advantage of waiting to take a benefit is that a high-income earning spouse can ensure that his or her lower earning spouse will receive a much higher benefit in the event that they (the higher earning spouse) dies first.
2. How Your Benefit is Factored
You must earn at least 40 “credits” to be eligible for Social Security benefits; you can earn four credits a year, so it only takes 10 years to become eligible. You must make $1,300 per year (in 2017) to get one credit and $5,200 to get the maximum four credits per year.
Your lifetime benefit is based on the 35 years in which you earned the most money. If you have less than 35 years of earnings, each year with earnings is factored in at zero. The good news is that the benefit is factored according to your 35 highest earning years. If you decide to work part-time as you phase into retirement, you won’t affect your benefit if you have 35 years of higher earnings.
3. Survivor Benefits
If you’re married and your partner dies, you will only receive one Social Security income. While your overall household income decreases when your spouse dies, your survivor benefit is the larger of the amount the survivor was receiving before your partner died.
Again, delaying the start of benefits is an excellent way to protect a surviving widow, particularly if the surviving spouse was the primary wage earner.
4. Cost of Living Adjustment
One of the best features of Social Security benefits is that the government adjusts your benefit every year to keep pace with inflation. This enables you to keep up with rising living expenses during retirement. COLA is an automatic feature for everyone’s Social Security benefit.
The amount of your yearly COLA depends on broad inflation levels determined by the government. Note: During times of recession there may not be a COLA adjustment. In 2009, however, Social Security beneficiaries enjoyed a COLA of 5.8%.
Because a COLA adjustment is automatic, it’s perhaps even more valuable when you consider the price you’d pay for inflation protection on a private annuity.
5. If You’re Divorced, You’ll Still Get the Benefit
Just because you’re divorced doesn’t mean that you won’t still get a benefit based on your former spouse’s earnings. If you were married at least 10 years, are 62 or older, and single, you still qualify to receive a benefit based on your ex-spouse’s earnings record.
You can get up to 50% of an ex-spouse’s benefit unless you claim before full retirement age. Taking a spousal benefit has no impact on your ex-spouse’s benefits or on the benefits of your ex-spouse’s new wife or husband.
Furthermore, an ex-spouse can claim a benefit if their ex has died first, and will be worth the full amount of what the ex-spouse received. Even if you remarry after age 60, you’ll still be eligible to claim the survivor benefit.