Choosing how and when to take your Social Security benefits is one of the most important financial decisions you will ever make.
Social Security benefits have many nuances, though, and the choices you make can radically alter the benefits you ultimately receive.
Many people need help making decisions about Social Security.
One way to get advice is talk to someone at a local Social Security office. Another is to pay a small, one-time fee to get a Social Security analysis that’s tailored to your specific circumstances, as we detail in “Maximize Your Social Security.”
However, others prefer a DIY approach. Understanding the following Social Security terms will go a long way in helping you make the best choices for your retirement.
1. FICA taxes
You face the reality of Social Security every time you get a paycheck. The stub shows that some of your pay has been diverted to pay FICA taxes. “FICA” stands for the Federal Insurance Contributions Act. FICA taxes fund both the Social Security and Medicare programs.
Think about the Social Security portion of the FICA taxes you pay like this, says the Social Security Administration:
“The money you pay in taxes is not held in a personal account for you to use when you get benefits. Today’s workers help pay for current retirees’ and other beneficiaries’ benefits. Any unused money goes to the Social Security trust funds to help secure today and tomorrow for you and your family.”
If you work for an employer, you each split a 12.4 percent payroll tax for Social Security. You also split a 2.9 percent Medicare tax.
If you’re self-employed, you pay a self-employment tax of 15.3 percent, which includes the 12.4 percent for Social Security and 2.9 percent for Medicare.
In 2019, the maximum amount of earnings on which the Social Security tax will be collected is $132,900. Any earnings above that amount are not taxed for Social Security.
2. Earnings record
Your earnings record is the Social Security Administration’s record of your lifetime earnings — “a chronological history of the amount of money you earned each year during your working lifetime,” as the federal agency puts it.
However, what you really need to know about your earnings record is that, although employers are responsible for reporting your earnings to the SSA, you are responsible for checking it.
And it’s critical to check the accuracy of your earnings record at least annually because an error could result in a smaller monthly benefit.
For example, if an employer improperly reports your earnings for even one year, your monthly benefit upon retiring could be around $100 less, according to the SSA. That amounts to a loss of tens of thousands of dollars over the course of your retirement.
The longer you wait to review your earnings record, the harder it will likely be to spot or correct any errors. The SSA explains:
“As time passes, you may no longer have past tax documents and some employers may no longer be in business or able to provide past payroll information.”
You can review your earnings record online — see the “mySocialSecurity account” section of this article.
3. Full retirement age
Your full retirement age is the age at which you can begin collecting your Social Security retirement benefits in full.
Your full retirement age is based on when you were born. For example, if you were born in:
- 1943-1954: Your full retirement age is 66
- 1955: 66 and 2 months
- 1956: 66 and 4 months
- 1957: 66 and 6 months
- 1958: 66 and 8 months
- 1959: 66 and 10 months
- 1960 and later: 67
It’s important to know your full retirement age because claiming your Social Security benefits before or after that age will lower or increase the amount of your benefit payment, respectively.
4. Delayed retirement credits
If you begin collecting benefits before reaching your full retirement age, your monthly benefit will be less than your full benefit amount — for the rest of your life. In other words, you will receive a smaller monthly benefit payment than you would have received if you waited until full retirement age to start collecting.
If you wait past your full retirement age to start collecting benefits, however, your monthly benefit will be higher than your full amount.
Specifically, for every year through age 70 that you hold off past full retirement age, your benefit will jump by as much as 8 percent, as we detail in “7 Reasons It’s Dumb to Claim Social Security Early.”
The Social Security Administration refers to this system as “delayed retirement credits.”
After age 70 there are no further increases so there is no further advantage to delaying claiming benefits.
5. mySocialSecurity account
Among other things, you can use your mySocialSecurity account to:
- Receive personalized estimates of future benefits.
- View your latest Social Security statement.
- Review your earnings history.
- Set up or change the direct deposit details for your benefit payments.
- Request a replacement card if you’ve lost yours.
Creating a mySocialSecurity account also prevents crooks from opening an account in your name and using it to divert your benefit payments to themselves, as we explain in “3 Free Ways to Protect Your Social Security Number.”
To create a mySocialSecurity account, visit SSA.gov, the official website of the U.S. Social Security Administration.
6. Spousal benefits
Even if you never worked, if you are or were married, you might be eligible to receive up to half of the amount of your spouse’s retirement benefit, which is known as “spousal benefits.”
If the benefit you would receive based on your spouse’s record is higher than the benefit you would receive based on your own earnings record, SSA will generally give you the higher amount, assuming you’re eligible for it.
The agency offers this example:
“Mary Ann qualifies for a retirement benefit of $250 and a spouse’s benefit of $400. At her full retirement age, she will receive her own $250 retirement benefit, and we will add $150 from her spouse’s benefit, for a total of $400. If she takes her retirement benefit before her full retirement age, both amounts will be reduced.”
Other restrictions may apply that could reduce your benefit, however.
If you are divorced, SSA says you might be eligible for benefits on your ex-spouse’s record if you were married at least 10 years, provided that you meet other conditions.
7. Survivors benefits
In some situations, family members of eligible wage earners who have died can receive what’s known as “survivors benefits.”
These benefits are based on multiple factors, including the deceased’s earnings and whether the deceased was already receiving reduced benefits at the time of death.
While spousal benefits are limited to half a spouse’s benefit, survivors benefits can be up to 100 percent of the deceased’s benefit amount.
Typically, eligible widows and widowers can begin getting Social Security benefits at age 60, or at age 50 if disabled, the SSA says.
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