The Complete Guide
to Social Security

Some retirees overlook Social Security benefits, assuming that they only constitute a small portion of their retirement income, while others believe there's relatively little that can be done to increase their lifetime benefits. The reality is that Social Security is an asset that could potentially be worth more than $1.75 million over the course of your and your partner's lifetimes.¹

Despite the income potential over time, the Social Security Administration estimates 70% of beneficiaries are receiving permanently reduced benefits. That's why it's important to consider how Social Security benefits factor into your larger financial plan for retirement to make sure you're receiving the maximum benefits to suit your needs.

There are a number of factors to consider when deciding when to file for your Social Security benefits and everyone's circumstances are different. Fully comprehending the ins and outs of Social Security can be difficult, and it's understandable if you have questions surrounding how and when to claim your benefits.

To help clear up any confusion and to limit the chances you'll leave any of your hard-earned benefits on the table, we've compiled a comprehensive set of guidelines that contain the most commonly asked Social Security questions to help you file for your benefits with confidence.

Your monthly benefit is based on your lifetime earnings. Throughout your life, you accumulate an earnings record (sometimes referred to as a work record), which is the basis the Social Security Administration (SSA) uses to calculate your benefits, using a three step process.

Keep in mind that Social Security recalculates your benefits annually to adjust for inflation and to factor in the previous year's income. If your previous year's income ranks in the top 35 years of earnings, Social Security drops one of your lower years and your average monthly earnings figure will go up.

You can get a better idea of your estimated monthly benefit amount by using the Social Security Administration's Retirement Estimator. 

Generally, you should apply for your retirement benefits about three months before you want your benefits to begin. This will depend on various factors unique to you, including when you reach your FRA (as discussed above). Regardless of when you reach your FRA, you have an 8-year window between ages 62 and 70 in which you can begin receiving your benefits.

The decision to claim early versus delaying boils down to a trade-off between choosing a lower monthly benefit that you receive over a longer period of time and choosing a larger monthly benefit for fewer years. For example, claiming right away at age 62 will leave you with a smaller monthly benefit. If your FRA is 66 and you claim at 62, your monthly benefit will be 75% of your full benefits amount—permanently reducing your benefits by 25%. Likewise, if your FRA is 67 and you claim at 62 your monthly benefit will be 70% of your full benefits and remain permanently reduced by 30%.

On the other hand, if you delay receiving your benefits beyond your FRA you will increase your benefits by 8% for each year you wait. For those with an FRA of 66, waiting until 70 to claim your benefits means you'll receive 132% of your FRA benefits while those with an FRA of 67 will have a maximum benefit of 124% of their FRA at age 70. Figure 2 below shows what this would look like for someone with an FRA of 66 and a full monthly benefit amount of $1,000.

Figure 2: Percent of Full Benefits Received from Early vs. Late Benefits Election. Assumes a PIA of $1,000.

Your FRA is just one factor to keep in mind when deciding when to claim your Social Security benefits. You should also consider additional factors contributing to your benefits election decision, including:

Know Your Break-Even Age

Another factor to consider when deciding to start claiming your benefits is your "break-even" age. This is the age at which you come out ahead if you opt to delay receiving your benefits. Your break-even age will shift depending on the amount of your FRA benefits and the age at which you begin receiving Social Security.

If you're relatively healthy and have a history of longevity in your family, there's a greater likelihood that you'll reach your break-even age. Figure 4 illustrates this concept for someone with a life expectancy of 92 and an FRA of 66. In this case, delaying the benefits until FRA instead of taking it at age 62 puts their break-even age around 75 and increases their lifetime benefits by over $100,000. Delaying even further to age 70 puts their break-even age around 79 and increases their lifetime benefits over $200,000.

Figure 4: How Delaying Impacts the Break-Even Age*

Source: Social Security Administration, www.ssa.gov. *Estimates are shown in today's dollars and based on assumptions for someone born 1/1/1949 earning the Social Security wage base maximum since 1976 or earlier. No cost of living adjustment, inflation estimates or reinvestment rate are included.

There is a common misconception that you must retire before you can begin receiving your Social Security benefits. That isn't true—you can claim your benefits starting at age 62 even if you are working. 

Once you reach FRA, working won't affect your Social Security benefits. However, if you claim your benefits before you reach your FRA, your earned income can lower your benefits. For 2020 you can earn up to $18,240 per year without affecting your benefits. However, for every $2 you earn over $18,240 your annual benefit will be reduced by $1.

The rules are a bit different the year you reach your FRA. First, the earnings limit is higher. If you'll reach your FRA in 2020 your earnings limit is $48,600, or $4,050 a month. The benefits deduction is also different the year you reach your FRA: for every $3 you earn over the limit, your benefits will be reduced by $1. It's important to note that this earnings limit only applies to the months before you reach your FRA. Once you reach your FRA, you can earn as much money as you want for the rest of the year without impacting your benefits.

Many people believe that their Social Security benefits are tax-exempt, but this simply isn't the case for many retirees. In fact, the Social Security Administration estimates that 52% of beneficiaries paid income tax on their benefits in 2015, and 56% of all beneficiary families will owe income tax on their benefits from 2015 – 2050.

Whether your benefits will be taxed and what percent of your Social Security benefits are taxed depends on your provisional income. This is different than your adjusted gross income (AGI). Your provisional income includes 50% of your Social Security benefits plus income from:

• Job earnings
• Pensions
• Annuities
• Investment returns and dividends
• Interest from tax-exempt bonds

Despite the number of things that make up your provisional income, the threshold to have a percentage of your benefits included in your taxable income is relatively low. If your income exceeds $25,000 ($32,000 if married filing jointly), up to 50% of your benefits may be taxable. If your provisional income is over $34,000 ($44,000 if married filing jointly), up to 85% of your benefits may be taxable. Keep in mind, this doesn’t mean that your benefits will be taxed at a 50% or 85% tax rate—it’s the maximum percentage of your benefits that will be included in your taxable income. The portion of your Social Security benefits that is taxable is taxed at your marginal income tax rate. See the table below for provisional income thresholds and percent of benefits taxed.

It's important to note that these income levels are not currently indexed to inflation. This means that over time, more and more people will see a percentage of their benefits included in their taxable income.

If you do have to pay taxes on your Social Security benefits, you can make quarterly estimated tax payments to the IRS or choose to have federal taxes withheld from your benefits.

In an effort to keep up with inflation and to protect retirees’ spending power, Social Security benefits usually increase each year as living expenses increase. The latest cost of living adjustment (COLA) is 1.6%, beginning with the December 2019 benefit, which is payable in January 2020. The SSA will announce the next COLA in October 2020.

When the Social Security Administration calculates the annual COLA figure, they use the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). CPI-W looks at a basket of goods and services purchased for consumption, including:

Interestingly, as a retiree, CPI-W is unlikely to be an accurate representation of how your spending habits change on a year-to-year basis. That's because the CPI-W does a poor job reflecting how important health care costs are for retirees. So even though you've likely seen significant increases in your medical expenses in recent years, because of the low-inflation environment that many other sectors of the economy are experiencing, your expenses may be increasing at a much higher rate than what the CPI-W represents.

While you'll likely see a COLA most years once you've enrolled in Social Security, it's important to remember that there's always the potential for a year with an abnormally low COLA. For example, those receiving Social Security saw a 0% COLA in 2016, meaning their benefits remained flat. To better protect yourself from a year with a low—or zero—COLA, consider reducing your reliance on Social Security by building up your savings as much as possible before retirement.

Social Security benefits are not reserved solely for retired workers. Since 1939, spouses of retired workers may also qualify for benefits that significantly increase household income in retirement, and widows and widowers can qualify for survivor benefits (as discussed below). However, the rules for spousal benefits can be complex. 

Social Security for Non-Working Spouses

If you've been married for at least a year and your spouse has already claimed their benefits, you could still receive spousal benefits based on your spouse's work record once you reach age 62, even if you don't have a work history that qualifies you for your own benefits.

The amount you’ll receive in spousal benefits is determined by your own work record, the work record of your spouse, and the age at which you begin collecting spousal benefits. These spousal benefits can be worth up to 50% of your spouse’s FRA benefits. As with individual benefits, if you begin receiving spousal benefits prior to your FRA, your benefits will be permanently reduced. 

Assuming a monthly spousal benefit of $500, the chart below shows how much the benefit would be reduced at age 62, based on FRA by birth year.

Social Security for Retired Worker Spouses 

If you have a work history that qualifies you for Social Security on your own, you may still be eligible for spousal benefits. All of the same requirements apply (i.e. you have to be married for at least a year, you are able to claim benefits starting at age 62, etc.), but you can't receive both your benefits and spousal benefits.

Social Security for Spouses with Dependent Children Under 16

There is an exception to the general rule that you have to be 62 to claim Social Security spousal benefits, and that’s when there are dependent children in the home. These days, more couples are having children later in life and the rates of divorce and remarriage among adults age 55 and older have grown significantly. Not to mention, more and more grandparents are finding themselves raising their grandchildren. Which means it’s possible to have dependent children who qualify for benefits on you or your spouse’s Social Security record.

If those children are under age 16, it's possible for the children to each receive benefits until they reach age 18 and graduate from high school. It’s also possible for you to qualify for spousal benefits, even if you’re younger than age 62. The rules in this scenario, however, are a bit different, including a maximum family benefit.

If you are younger than age 62 and claim spousal benefits while caring for a child under 16, you won't be subject to a reduction in spousal benefits for as long as that child is younger than 16. However, the spousal benefits will go away when the child reaches age 16 and keep in mind the amount of the spousal benefit will be subject to maximum family benefit rules. The maximum family benefit amount varies between 150% and 188% of the worker’s benefits, depending on a complex formula calculated by the Social Security Administration.

If a spouse's benefits plus benefits to dependents exceed this family limit, the amounts paid will be reduced equally among them. Like non-worker spouses, spouses with dependents can receive benefits only if the working spouse has also claimed benefits.

Social Security for Same-Sex Spouses 

Same-sex couples "have a constitutional right to marry in all states and have their marriage recognized by other states,” as decided in the 2015 U.S. Supreme Court decision in Obergefell v. Hodges. That decision means that Social Security recognizes same-sex couples’ marriages in all states when determining eligibility for Social Security, including spousal benefits. Therefore, all of the same rules apply depending on your situation (i.e. if you are a non-working or retired spouse) as discussed above.

To find out more about Social Security claiming strategies for same-sex couples, speak with your financial advisor. Your claiming strategy is going to be unique to your situation.

Divorce doesn't necessarily mean you lose your spousal benefits. In order to be eligible to receive benefits based on your ex-spouse's work history, you generally have to meet the following criteria:

• You were married to your ex-spouse for at least 10 years
• You must be at least 62 and unmarried
• Your ex-spouse must currently be eligible to receive Social Security

Keep in mind that your ex-spouse doesn't have to currently be receiving Social Security benefits, they only have to be eligible to receive benefits.

Claiming benefits based on your ex-spouse's record will have no effect on the benefits your ex-spouse will receive, and your ex-spouse is not notified if you choose to claim on their record. If your ex-spouse has remarried, your ex-spouse's new partner will also be eligible for spousal benefits. 

If you did remarry and your second marriage lasted at least ten years before ending, you can choose which ex-spouse's record to base your benefit claim on. In other words, you can claim on whichever ex-spouse's record gets you the higher benefit.

Certain family members may be eligible to receive a monthly benefit upon the death of a loved one, including:

• A widow or widower age 60 or older (age 50 or older if disabled)
• A surviving divorced spouse, age 60 or older, under certain circumstances
• A widow or widower at any age who is caring for the loved one's child who is under age 16 or disabled and receiving a benefit on their record
• An unmarried child who is younger than age 18
• An unmarried child with a disability that began before age 22

Under certain circumstances, other family members may be eligible, such as:

• A stepchild, grandchild, step-grandchild or adopted child
• Parents age 62 or older who were dependent on the deceased for at least half of their support

When a family member receiving benefits dies, it’s important to notify Social Security as soon as possible to stop the payments. Otherwise, you will have to repay any benefits paid to the deceased family member after his/her death. However, you cannot report a death or apply for survivor benefits online—you have to visit your local Social Security office or call 1-800-772-1213.

As a widow or widower, you may be eligible for survivor benefits based on your deceased spouse’s record if you were married for at least nine months before the date of death. You can begin receiving your survivor benefits as soon as you reach age 60, or younger if you are caring for children of the deceased who are under age 16. 

While you can begin receiving benefits at 60, your benefits will be permanently reduced. For this reason, often only the children will claim survivor benefits. That's because when the surviving spouse is not receiving benefits, each child might receive more because the spouse’s benefit isn’t included in the maximum family benefit calculation.

In order to receive the highest possible benefit if you do decide to claim as a surviving spouse, you must wait until you reach FRA. Unlike a retirement benefit, delaying your survivor benefit longer than your full retirement age will not increase the benefit.

Ex-Spouse Eligibility for Survivor Benefits

It's possible to receive spousal benefits based on your ex-spouse's record if you have not remarried or if you remarried at age 60. If you remarry prior to age 60, you will no longer be eligible to receive benefits off of your deceased spouse's record unless that remarriage ends. If you remarry after you turn 60, your eligibility for survivor benefits is not affected. However, you cannot take both retirement or spousal benefits and survivor benefits at the same time, so it's important to factor how each could impact your retirement income strategy.

How Survivor Benefits Amounts Are Determined

Your total survivor benefits amount will depend on the earnings of the deceased, as the monthly survivor benefit amount is a percentage of their basic Social Security benefits.

If the deceased spouse was receiving Social Security at death, the maximum amount you may receive in survivor benefits is equal to the amount they were receiving.

If the deceased spouse hadn't begun receiving Social Security at the time of death, your benefit payments are calculated as if your spouse had reached full retirement age.

Keep in mind that for each year that your spouse delays claiming their benefits past their FRA, their benefit amount increases by 8%. So, if the deceased spouse was older than their FRA at the time of death and hadn’t begun receiving Social Security, the surviving spouse would be eligible to receive the benefits the deceased spouse would have been eligible for at the time of death. In other words, if your spouse dies at 68 and had an FRA of 66, you may be eligible for 116% of your spouse’s FRA benefits, so long as you wait until reaching your FRA before filing.

While the survivor benefits in this example would be based on what the deceased would have earned by waiting until age 68, it’s important to note that you cannot increase survivor benefits even further by waiting beyond your FRA. Therefore, there is never a reason to wait past your FRA to file for survivor benefits.

Remember: you cannot take both retirement benefits and survivor benefits at the same time. When deciding which one to take, you need to compare the two benefits to see which is higher. In some cases, the decision is easy—one is clearly much higher than the other. However, it could be more complicated. It may make sense to claim survivor benefits at your FRA and let your retirement benefits continue to grow, then switch to your own retirement benefits at age 70.

If you claim Social Security and regret it, you do have the option to reverse that decision, although you have a limited window of time in which you’re able to do so. Since you only have a limited period of time to reverse your decision to claim your benefits (and you can only do so once), it’s critical you evaluate your options before you file to help ensure you’re not leaving money on the table.

If you do decide you want to withdraw your application, you must fill out Social Security Form SSA-521 and state why you’re choosing to do so. This form must be submitted within 12 months of the date when you filed, and you must repay all the benefits you and your family received based on your application. You must also provide written consent with your withdrawal from anyone who received benefits based on your initial application.

However, if you miss the 12-month window to withdraw your filing, you can wait until your FRA to suspend benefits. The 8% growth on your benefits for each year beyond FRA would then be based on what you were receiving when you suspended. Plus, if you suspend your benefits and your spouse was receiving spousal benefits, you will also suspend their spousal benefits.

If you are also entitled to railroad or veteran’s benefits, you should contact the U.S. Railroad Retirement Board or U.S. Department of Veterans Affairs to see how your withdrawal affects those benefits. These organizations are responsible for their own programs separate from Social Security.

Another thing to consider is whether your decision to reverse will impact your Medicare premiums. You might be responsible for benefits paid on your behalf, taking over premium payments, or face implications if you file for Medicare again later.

While this is a collection of the most commonly asked questions about Social Security, it’s likely there are still others that pertain to your specific situation. Calculating your Social Security benefits and when to claim them can be very complicated—there are seemingly countless possible strategies when you take into account combinations of each month between ages 62 and 70, either spouse filing for benefits, the possibility of a survivor benefit, etc. that result in a different cumulative benefit amount for each strategy.

To find out the claiming strategy that would work best for your circumstances, consult with a financial advisor experienced in Social Security benefits analysis. Working with your financial advisor can help you identify the best time and method for claiming Social Security to help potentially maximize the lifetime benefits you and your spouse will receive.

¹Hypothetical estimate of lifetime benefit assumes a high earner receives the maximum 2016 FRA of $2,787. Low earner FRA is assumed to be $0 and receives spousal and survivor benefits. Life expectancy of high earner is 85; low earner is 92. A 2% cost of living adjustment (COLA) included in the calculation.

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