What Issues Should I Consider With My Social Security Retirement Benefits?

About the author: Lamar Watson, CFP®, is a Fee-Only Financial Advisor in the Washington, D.C., area that works with clients virtually across the country. Dream Financial Planning is a Fiduciary Financial Planning firm specifically designed to help individuals take control of their finances and fulfill their dreams. Feel free to schedule a complimentary consultation to learn how we use the DREAM Financial Planning Process ™ to help our clients achieve their goals. 

Social Security is a different experience for every American, but certain things are universal. Last year, MassMutual put out a quiz about Social Security and they were surprised at how few people got even a passing grade. Let's see how you do.

True or False:¹

1. In most cases, if I take benefits before my full retirement age, they will be reduced for early filing.
2. If I am receiving benefits before my full retirement age and continue to work, my benefits might be reduced based on how much I make.
3. If I have a spouse, they can receive benefits from my record even if he or she has no individual earnings history.
4. If I have a spouse and he or she passes away, I will receive both my full benefit and my deceased spouse's full benefit.
5. Generally, if I am in a same-sex marriage, there are different eligibility requirements when it comes to Social Security retirement benefits.
6. The money that comes out of my paycheck for Social Security goes into a specific account for me and remains there, earning interest, until I begin to receive Social Security benefits.
7. Under current law, Social Security benefits could be reduced by 20% or more for everyone by 2035.
8. If I file for retirement benefits and have dependent children aged 18 or younger, they also may qualify for Social Security benefits.
9. If I get divorced, I might be able to collect Social Security benefits based on my ex-spouse's Social Security earnings history.
10. Under current Social Security law, full retirement age is 65 no matter when you were born.
11. If I delay taking Social Security benefits past the age of 70, I will continue to get delayed retirement credit increases each year I wait.
12. Social Security retirement benefits are subject to income tax just like withdrawals from a traditional individual retirement account.
13. I must be a U.S. citizen to collect Social Security retirement benefits.

Ready for your answers? 1. True; 2. True; 3. True; 4. False; 5. False; 6. False; 7. True; 8. True; 9. True; 10. False; 11. False; 12. False; 13. False.

How did you do? According to MassMutual, 65% got the equivalent of a "D" or an "F." So, while not everyone goes to the head of the class, most of us could do with a refresher on Social Security, what to think about before we take it, and to make our plans surrounding it.

What Issues Should I Consider With My Social Security Retirement Benefits?

Social Security retirement benefits can be particularly complex, and most people really struggle with their decision on how to file. In the checklist above we cover the issues you should consider with regards to your social security benefits.

With this checklist, you'll be able to determine how to best approach your Social Security retirement benefits, and ensure your benefits are aligned with your other financial planning goals. Get a step ahead, and be prepared to make the best decision for you and your family.

This checklist covers the key issues to consider when making a decision surrounding your Social Security retirement benefits, such as:

• Determining whether they should file early or delay their benefits.
• Understanding the claiming options they have at their disposal.
• Coordinating their benefits with the spouse or ex-spouse.
• Understanding how their benefits may impact other tax-planning goals.

Maximizing your Benefit

Determining when to take Social Security benefits is a complicated financial decision. Here are a few things to think about and discuss with your financial professional. The timing of taking social security benefits and developing a  strategy to liquidate your retirement accounts and brokerage accounts to replace your paycheck and sustain spending during retirement are important topics to consider as you approach retirement. If you need help with developing strategy, please feel free to schedule a Free Consultation.

If you have a family history that suggests you might live into your 90s, you may want to consider claiming Social Security later. If you start receiving Social Security benefits at or after full retirement age, your monthly benefit will be larger than if you had claimed at 62. What fits best with your financial strategy—more lifetime payments that are smaller, or fewer lifetime payments that are larger?

Will My Social Security Benefits Be Reduced?

Prior to full retirement age, your benefits may be lessened if your income exceeds certain limits. The flow chart above will help you evaluate potential reduction in benefits. Claiming Social Security benefits can be one of your most important decisions once you retire. There are a multitude of rules that can have a significant and lasting impact on your future income stream and overall financial picture.

The flowchart is based on the Social Security Administration’s guide, “Retirement Benefits,” and addresses common issues including:

• How to determine Full Retirement Age (FRA)
• Effects of marriage and divorce
• Implications of collecting benefits before, at, or after FRA
• Annual limits
• Impact of continuing to work while claiming benefits
• How benefits will be taxed

Will you keep working? If you want to keep working, you'll need to be mindful of earning too much income, which may result in your Social Security benefits being taxed. Keep in mind that this article is for informational purposes only. It's not a replacement for real-life advice, so be certain to consult your tax or accounting professional before modifying your decision on whether to work in retirement. Social Security income may also be taxed above the program's "combined income" threshold. Check with your trusted tax professionals about how this might affect you.

When does your spouse want to file? Timing does matter, especially for two-income couples. If the lower-earning spouse collects Social Security benefits first, and then the higher-earning spouse collects them later, this may result in greater lifetime benefits for the household.

Calculate Your Social Security Benefit

How much in benefits might be coming your way? Visit SSA.gov to find out, and keep in mind that Social Security calculates your monthly benefit using a formula based on your 35 highest-earning years. If you have worked for less than 35 years, Social Security fills in the "blank years" with zeros. If you have, say, just 33 years of work experience, working another couple of years might translate to a slightly higher Social Security income.

Trusted Guidance

When to start drawing Social Security benefits may be one of the most significant financial decisions of your life. Ideally, your choices should be evaluated years in advance—with insight from the financial professional who has helped you prepare for retirement. And if you took the quiz and found room for improvement, all the more reason to consider working with a financial professional who may be able to help you up the learning curve. If you need help with developing strategy, please feel free to schedule a Free Consultation.

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