Updated from the original publication on September 12, 2019.
The Social Security Administration (SSA) pays out billions of dollars every month to retirees, disabled workers, and their family members. But what are social security benefits and how do you know if you qualify for them?
By knowing and understanding how social security benefits are calculated and paid out, you may be eligible for more than you think.
We've done the hard work and found the top five most important things that you need to know about social security benefits — from stopping your benefits and starting them up again, to working with your spouse to delay claiming of benefits. Knowing that these five strategies exist will make your retirement years less stressful, allowing you to focus on your family and loved ones.
Social security benefits can be very complicated - be sure to involve a retirement planner or a trusted advisor to help you make the best decisions that fit your needs.
Whether you're currently receiving Social Security benefits now, or will receive benefits in the near future, it's important to understand as much as possible so that you know exactly how much you should save and when to file.
1.The Start-Stop-Start Claiming Strategy.
If you have elected to receive Social Security before full retirement age, you can stop your benefits and restart them later once you have reached age 70 when they will be larger due to the delayed retirement credit.
This Start, Stop, Start claiming strategy may work for married couples where, let's say, a wife files early to allow her husband to collect spousal benefits. When she reaches full retirement age, she can choose to suspend payments and restart them at age 70. When her husband begins collecting his own benefits, she can apply for a spousal benefit on his work history.
There are variables involved in this claiming strategy and it may not work for all scenarios. So it's important to speak with a retirement planner about your options before making any financial decisions.
2. Survivors Can File and Suspend Before Full Retirement Age
A widow/widower is eligible to collect benefits on his or her work history and later switch to receiving survivor benefits. Or vice versa, a widow/widower can collect survivor benefits and later switch to their own retirement benefits, even if the surviving spouse files before full retirement age.
3. The Magic Age and Magic Request
Not only does the earnings cap disappear at full retirement age (currently 66), but that's when you can also engage in some creative claiming strategies. Consumers need to know only two phrases: "file and suspend" and "file a restricted claim for spousal benefits." You must be at least 66 to use either one.
At 66, you can tell SSA you want to file and suspend. That means you are filing for your benefits but you are not collecting them yet. Your retirement benefits earn delayed retirement credits (DRCs) worth 8 percent per year for every year you postpone collecting them up to age 70. If your full retirement age is 66 and you wait until 70 to collect, you could boost your retirement benefits by 32 percent (8 percent x 4 years).
You also might want to file and suspend in order to trigger spousal benefits for your mate (who must be at least 62 years old or caring for a minor child under age 16). This could enable your spouse to delay starting their own benefits until they are 70, when they would get more.
4. Your Benefit is Based on the 35 Years
Your 35 highest-earning years are what your benefit is based on, and lower-earning years will never replace others. To be eligible for Social Security benefits, you must earn at least 40 "credits." You can earn up to four credits a year, so it takes ten years of work to qualify for Social Security. In 2019, you must earn $1,360 to get one Social Security work credit and $5,440 to get the maximum four credits for the year.
Your benefit is based on the 35 years in which you earned the most money. If you have fewer than 35 years of earnings, each year with no earnings will be factored in at zero. You can increase your benefit by replacing those zero years, say, by working longer, even if it's just part-time. But don't worry, no low-earning year will replace a higher-earning year.
The benefit isn't based on 35 consecutive years of work, but the highest-earning 35 years. So if you decide to phase into retirement by going part-time, you won't affect your benefit at all if you have 35 years of higher earnings. But if you make more money, your benefit will be adjusted upward, even if you are still working while taking your benefit.
There is a maximum benefit amount you can receive, though it depends on the age you retire. For someone at full retirement age in 2019, the maximum monthly benefit is $2,861. You can estimate your own benefit by using Social Security's online Retirement Estimator.
5. Talk to Each Other
For spouses, delay the larger of the two benefits until age 70 for a bigger benefit. Married couples, including same-sex couples, should coordinate their claiming strategies. In general, the spouse with the larger Social Security benefit should delay claiming up to age 70, creating not only the largest possible retirement benefit but also the largest possible survivor benefit. In many cases, the lower-earning spouse may want to claim reduced benefits at 62, assuming he/she is not working in order to bring some income into the household to lessen the sting while the higher earner delays collecting until 70.
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