Week 5: Social Security Secrets

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“You can be young without money, but you can’t be old without it.” — Tennessee Williams

Retirement vision: check. Net worth: known. Budget: built. Debt: targeted.

It’s time to turn to the foundation of your retirement plan, Social Security, and figure out how this is all going to work.

Social Security is great. And we’re going to talk about how to boost your benefits as high as you can. But realize up front: For most people, Social Security alone is not enough to get by on — at least not comfortably. In 2018, the average retiree received $1,413 per month in benefits.

As you may have heard, when you start claiming Social Security can have a big impact on how much you’ll receive for the rest of your life. You have to know how the system works to avoid costly mistakes.

You’re not gaming the system or selling yourself short; you’re getting what’s yours when you need it most.

That’s what we’re going to talk about this week. You’ve been paying Uncle Sam for decades, and now it’s time for him to pay you.

This week, you’ll learn how to get the most money possible and at the time you need it most. Then, next week we’ll tackle everything you will use to build upon this foundation.

Sound good? Let’s get started.

Who’s eligible for Social Security?

“Social Security” includes a couple of different programs. You have retirement benefits, which can be collected as young as age 62. Then, there are disability benefits for those who haven’t been able to work and, finally, survivor benefits for spouses and children of workers who have died.

We’re going to focus on retirement benefits. You’re eligible for them if you have:

  • Worked at least 10 years
  • Earned at least $5,440 (as of 2019) in each of those years
  • Paid Social Security taxes

If you were born after 1928, you’ll need at least 40 “credits” to be eligible for Social Security. You can earn up to four credits per year.

The federal government awards credits based on your income. If you earn at least $1,360, you get one credit. You’ll need to make $5,440 in a year to get the maximum of four.

Most people will meet these criteria decades before they need to draw Social Security benefits. The point is, you need to pay into the system or it doesn’t matter how much you make or how long you’ve been making it.

While almost everybody does contribute to Social Security (that’s what the FICA tax on your paycheck is for), some state and local governments opt out. Even career public servants in these places can’t claim Social Security, because they haven’t paid into it.

As of this writing, 15 states don’t offer their public school teachers Social Security coverage. (Instead, nearly all have access to a local or state retirement program.) That means educators there may get a pension, but won’t be able to claim Social Security benefits based on their teaching earnings. The states, according to the National Education Association, are:

  • Alaska
  • California
  • Colorado
  • Connecticut
  • Georgia (certain local governments)
  • Illinois
  • Kentucky (certain local governments)
  • Louisiana
  • Maine
  • Massachusetts
  • Missouri
  • Nevada
  • Ohio
  • Rhode Island (certain local governments)
  • Texas

Most Americans, however, have been paying into the Social Security system since our first jobs. (Mine was at McDonalds when I was 15 and hamburgers were 12 cents!)

Take a few minutes to examine your Social Security statement. (You should have this handy if you completed the task in Week 2.)

Time is money, and more is better

To maximize your Social Security benefits, you need to work and pay into the system for at least 35 years. That’s because retirement benefits are calculated using a formula that includes your 35 highest-earning years — if you work fewer than 35 years, the formula uses zeros for the missing years’ earnings, lowering your benefit amount.

If you work more than 35 years, your lower-earning years can be replaced in the formula with years that had higher earnings. Your estimated benefit is adjusted each year.

The SSA caps your income used in this formula. For 2019, that limit is $132,900. It doesn’t matter how much more you make: That’s the maximum you’ll be taxed on for Social Security purposes.

According to government estimates, with average lifetime earnings, you can expect your Social Security benefit to be about 40 percent of your pre-retirement income.

Now let’s talk about boosting your benefit as high as possible!

When to claim Social Security benefits

“Timing is everything” is an expression that applies to Social Security. You have roughly three options when claiming benefits:

  • Early benefits: You can start taking your money as early as age 62. Downside: a permanent cut of 30 percent in your benefit amount. This reduction gets smaller as you close in on your full retirement age (FRA).
  • Full benefits: Once you hit your FRA (see the chart below), you can take your full benefit.
  • Delayed benefits: You’ll earn an 8 percent boost in the benefit for every year you wait after FRA to begin payments, up to age 70. There’s no advantage to waiting beyond that age. But if you can hold out those extra years, you’ll get 32 percent more monthly than if you took benefits at the full retirement age — which could be worth up to $12,000 per year, for life! That’s a big difference!

This chart from the Social Security Administration shows when you’ll hit “full benefit” age.

So, the eight-year window between ages 62 and 70 can have a big impact on your lifetime Social Security earnings. That makes waiting until age 70 a no-brainer, right?

Not necessarily.

Ask yourself these questions:

  • Does my family have a history of longevity? In other words, did my parents and grandparents die relatively young?
  • What is my health like now?
  • Will I physically be able to work until age 70?
  • If I can’t or don’t want to work until age 70, do I have other assets I can use while I delay Social Security?

You can find break-even calculators online that show when you come ahead financially by claiming Social Security earlier. Generally, the longer you expect to live, the better it is to wait.

In short, retirement is about more than dollars and cents. It’s about your attitude toward work, your health, your likely lifespan and what’s best for you and your family.

If quitting the workforce early is what’s right for you and you need claim Social Security to do it, don’t let anyone make you feel bad for that decision. You’re not gaming the system or selling yourself short; you’re getting what’s yours when you need it most.

Working while collecting Social Security

We’re going to go into this topic in greater depth in a few weeks when we talk about working in retirement. But here’s the short version:

  • Yes, you can work while collecting Social Security
  • But, if you claim benefits early and earn more than a certain amount in a year ($17,640 in 2019), you could be penalized.
  • Once you reach your full retirement age, you can earn as much as you like.

Stay tuned for details.

Is Social Security taxed?

The short answer: maybe. It’s more likely if you’re still working.

The long answer: A convoluted system using something called a “combined income” decides if and how much of your Social Security benefits are taxable.

To determine if any of your benefits are taxable, add 50 percent of your Social Security benefits to your adjusted gross income plus any nontaxable interest you may have. That total is your combined income. Example:

Assume you’re married, your annual Social Security benefits are $20,000, and you earned $32,000 from work last year. You have no other income. Add half your benefits ($10,000) to your part-time income ($32,000) for a combined income of $42,000.

Next, compare your combined income with these base amounts:

  • $25,000 for single taxpayers
  • $32,000 for married couples filing jointly
  • $0 for individuals married but filing taxes separately

In this example, since you’re married and your combined income exceeds the $32,000 cap by $10,000, you’ll pay income taxes on that $10,000.

(If you’re married but filing taxes separately, you’re guaranteed to pay taxes on your benefits. That could make it worth changing your filing status.)


Married couples must calculate their combined income by using their joint income and both spouses’ Social Security benefits.

How Social Security taxes are calculated

OK, so let’s assume your combined income means you exceed the thresholds we’ve just talked about. In that case, you’ll pay taxes on up to 85 percent of your Social Security benefits.

It works out like this:

  • Individual filers will pay tax on up to 50 percent of their Social Security benefits should their combined income be between $25,000 and $34,000. Those with a combined income greater than $34,000 may pay taxes on up to 85 percent of their benefits.
  • Married filers with joint returns will pay tax on up to 50 percent of their Social Security benefits if their combined income is between $32,000 and $44,000. Those with a combined income greater than $44,000 may pay taxes on up to 85 percent of their benefits.

Note that those numbers are up to 50 percent and 85 percent. The actual percentage you’ll pay depends upon a complex worksheet the IRS has you fill out, or you could use tax prep software to do the math for you.

In addition to federal taxes, don’t forget that you may have to pay state taxes on your benefits as well.

Social Security spousal benefits

Earlier in this chapter, we explained you had to work and pay Social Security taxes in order to claim benefits.

Not quite true.

Spousal benefits allow you to receive half your spouse’s monthly benefit, even if you’ve never worked a day in your life and never paid a dime of Social Security.

Let’s consider how this works in a couple of different scenarios:

1. You’re currently married.

Once your spouse begins claiming his or her retirement benefits, you can claim a spousal benefit, which is limited to one-half of your spouse’s full retirement amount.

If you’re eligible to claim your own Social Security benefits, you’ll get the higher of your own payment or the spousal benefit.

If you were born on or before Jan. 1, 1954, there is a neat trick you can use to let your own benefits grow while claiming spousal benefits. We’ll talk about that later.

2. You’re divorced.

Assuming you were married for at least 10 years, you can claim benefits from your ex-spouse’s work record once you reach age 62. It doesn’t matter if your ex has started his or her own benefits yet.

Like those who are married, if you’re eligible for your own benefits, you’ll get the higher of your benefit or your spousal benefit.

If you remarry, you no longer qualify for spousal benefits from your ex’s Social Security.

Claiming spousal benefits from your ex doesn’t reduce their benefit or otherwise affect them at all. In fact, they’re not even notified when it happens.

3. You’re a widow or widower.

If your husband or wife passes away prior to retirement age, you can claim survivor benefits as early as age 60, or age 50 if you’re disabled. You can also claim these benefits if you’re divorced and your ex-spouse passes away. In both cases, if you remarry after age 60, it doesn’t affect your survivor benefits.

While the spousal benefit is limited to one-half of your spouse’s full retirement amount, the benefit for a widow or widower at full retirement age is 100 percent deceased’s benefit amount.

If both you and your spouse are receiving Social Security retirement benefits when he or she passes away, you’ll continue to get the larger of the two benefits. But you won’t be able to get them both.

Just as with your own Social Security benefits, applying for spousal benefits early means you’ll get a permanently reduced monthly amount.

How to make the most of spousal benefits

In the past, the government allowed people to file for Social Security benefits and then immediately suspend their payments. This allowed one half of a married couple to claim spousal benefits while the other half’s benefit amount grew. Remember: You get an 8 percent bump in your benefits for each year after your full retirement age, up to age 70.

This was known as the “file and suspend” strategy. Like all great things, it didn’t last. The government put the kibosh on that a few years ago, but you still have options.

If you were born on or before Jan. 1, 1954, you can file what is known as a restricted application. This will allow you to receive your spousal benefits and let your personal Social Security benefits grow. You must be your full retirement age to do so.

Here’s what a restricted application scenario might look like:

You’re 66, and your spouse has already begun receiving benefits. You file a restricted application for spousal benefits and receive payments. Meanwhile, you delay filing your own Social Security claim until 70, when your benefits are maxed out.

Then, you automatically switch from your spousal benefit to your own retirement benefit, if it is higher.

For younger couples, there’s no easy way to know how to maximize Social Security benefits. You must figure how much each of you will make (that will be part of your homework this week) and determine when each person will start benefits.

If you have a financial planner, put them to work. They have software for various scenarios. Or, here’s another idea:

Get expert advice

What if you could invest 30 bucks and get back a personalized Social Security claiming strategy that netted you thousands more in benefits over your lifetime?

You can. There are companies using algorithms that promise to maximize your Social Security income. You give them a few simple pieces of information, they send you back a personalized report detailing exactly at what age you and your spouse should file to get the maximum possible benefits.

We made a deal with one of these providers, Social Security Choices, which sells its product for $39.99. But Money Talks News readers and those taking this course can use the coupon code “moneytalks” for a $10 discount. (See our Solutions Center for more financial solutions.)

These reports are most useful for couples, since two people have more potential claiming choices. I’ve done it myself and highly recommend it.

Putting it all together: 10 takeaways to maximize your Social Security benefits

We’ve covered a lot of ground here. Before we say goodbye for this week, let’s recap all the various ways you can get more from Social Security …

1. Work for 35 years.

The size of your Social Security benefit check is decided by a formula based on your 35 highest-earning years of work. If you work fewer than 35 years, the formula uses zeros for the missing years’ earnings. Years of zero earnings will lower your benefits, so try to get in 35 years before calling it quits!

2. Ask for a raise.

Because the amount of your Social Security benefits is based in part on your earnings, doing what you can do now to grow your income will fatten your Social Security payments in the future.

If a raise isn’t possible, working a side hustle will help boost earnings too, so long as you report all of your income on your taxes and pay what you owe to Social Security.

Bottom line: The more you make now, the more you make later.

3. Avoid claiming benefits early, if possible.

The age at which you start collecting Social Security makes a big difference in the size of your payments.

You can start claiming benefits as early as age 62. But your monthly benefit payments will be smaller if you claim any time before you reach what the SSA deems your full retirement age.

Some people have no choice. Many retirees stop working earlier than they planned because of illness, unemployment or to be caregivers for a family member. If that is the case for you, try to use other sources of income to hold off claiming benefits until you’re older. But do what you need to.

4. Ideally, wait until 70 to start benefits.

Not everyone can afford to delay Social Security, or wants to. If you have reason to believe you won’t live long enough to benefit from waiting until 70, for instance, collect early.

For everyone else, wait as long as you comfortably can to start your benefits. You’ll get an 8 percent increase in your monthly amount for every year you delay past your full retirement age, until age 70. There’s no benefit, though, in waiting past age 70; there are no further increases after that point.

5. Get professional help.

Call in the pros to help you make an informed decision about when to claim Social Security benefits. It could boost benefits by tens of thousands of dollars over your lifetime, especially for couples.

Order a customized analysis from companies such as Money Talks News partner Society Security Choices. (Reminder: We’ve negotiated a discount just for you. Simply using the coupon code “moneytalks” will get you $10 off for a final price of $29.99.)

6. Don’t overlook spousal benefits.

Married people have an advantage in the Social Security system. A married person may be able to receive up to half the amount of his or her spouse’s full retirement benefit. Even a spouse who never worked may be able to claim spousal benefits.

A divorced person who was married at least 10 years can also get spousal benefits so long as they haven’t remarried.

7. Filing early means you can get penalized for working in retirement.

If you claim Social Security benefits before reaching full retirement age and also work, it can cost you. The government could reduce your Social Security checks by as much as $1 for every $2 in earnings over a certain amount, up until you reach full retirement age.

The amount you are dinged, however, eventually will come back to you. Once you reach full retirement age, your monthly benefit will increase to account for the withheld benefits. You just have to live without it for the period during which you are still working but have yet to reach full retirement age.

We’ll go over how to handle this in more detail when we talk about working in retirement.

8. Watch out for taxes.

If your only income in retirement will be from Social Security, you probably won’t have to worry about paying income taxes. But if you have income from other sources, you can be taxed on up to 85 percent of your benefits.

Federal taxes on Social Security benefits are based on your tax filing status and what the SSA calls your “combined income.” Combined income comprises your adjusted gross income, half your Social Security benefits and any nontaxable interest.

So you may be able to reduce your federal income tax bill in retirement by choosing investments that would reduce your tax liability. You could also reduce your spending so you can draw down less income from your retirement savings each year.

9. Get out of debt.

Social Security checks can be garnished for certain debts and other financial obligations, which can include:

  • Child support
  • Alimony
  • Overdue federal taxes
  • Non-tax debts owed to a federal agency

If possible, pay these off before retirement so you can keep your entire benefit payment.

10. Make sure the government has it right.

Monitor your Social Security statements, looking them over to ensure your income is reported correctly. Getting credit for every penny you’ve earned will boost your eventual benefit amount!

Your task for this week

  1. Head to www.ssa.gov/myaccount and log in to (or create, if you haven’t previously) your account so you can view your Social Security earnings and estimated benefits. Confirm the income information is correct.
  2. Fill in the chart below using information from your account.
  3. Discuss with your spouse, if you have one, your retirement plans.
  4. (Optional) Request a personal report from Social Security Choices to see how to coordinate benefits with your spouse.

Download: Week 5 Worksheet: My Social Security