Social Security: Five Facts You Need to Know ??

To say that Social Security can be complicated is an understatement! Because of the level of complexity, it is hard to know when to start collecting. ???

Here are some important facts about Social Security to keep in mind as you make what may be one of the biggest decisions of your life. ??

1?? Social Security Is a Critical Source of Retirement Income ??

Although some have the perception that Social Security is a small piece of the puzzle in retirement, a recent report by the Employee Benefits Research Institute showed that Social Security represents a major source of income for 64% of retirees. ?? For this reason, and many others, you must try to maximize the lifetime benefit you will receive.

2?? You Can Choose When You Take Social Security ?

You control when you take your benefits. The earliest you can start is age 62; however, your benefits will be reduced for each month you begin taking Social Security before your full retirement age. ??

The full retirement age (FRA) is 67 if you were born in 1960 or later. If you were born before 1960, your retirement age will be 66 and some number of months based on the year in which you were born. ??

If you delay benefits until after reaching your FRA, your benefits increase by 8% annually. This increase will be automatically added each month from the moment you reach FRA until you start taking benefits or reach age 70. At age 70, these delayed retirement credits stop accruing. ??

If you intend to continue working, your benefits will be reduced if your earnings exceed certain limits. If you work and start receiving benefits before your FRA, your benefits will be reduced by $1 for every $2 in earnings above the annual limit. ??

If you continue to work during the year in which you attain FRA, your benefits will be reduced by $1 for every $3 in earnings over a different annual limit until the month you reach FRA. Once you have attained FRA, your benefits will not be reduced regardless of how much you earn. How awesome is that! ??

As stated above, the decision of when to begin taking Social Security is a critical one. ?

3?? Social Security May Be Taxable ??

Most people don’t know that depending on your income level, your Social Security may be taxed. The chart below illustrates how your income can impact whether your Social Security retirement benefit is taxable. ??

Will Your Social Security Benefits Be Subject to Federal Income Taxes?

• 50% of Benefit Subject to Taxation: Individual Filers – Combined Income of $25,000 to $34,000 Joint Filers – Combined Income of $32,000 to $44,000
• 85% of Benefit Subject to Taxation: Individual Filers – Combined Income Greater than $34,000 Joint Filers – Combined Income Greater than $44,000

This potential income tax exposure can impact whether you choose to work during retirement, how your assets are invested, and the timing of withdrawals from your retirement accounts. ??

As an example, withdrawals from traditional IRAs may lift your income beyond the thresholds described above, subjecting a higher proportion of your Social Security to income tax. Not an ideal situation for tax purposes! ??

The same is true of investment earnings in non-retirement accounts. Retirees who have investment earnings in excess of their current spending needs may be putting their Social Security at risk of being taxed. ??

When planning for income or distributions in retirement, you must make sure you have a tax-efficient strategy in place to help you lessen the burden of taxes. ??

4?? Social Security Can Be a Family Benefit ????????

A spouse (even if they did not work) qualifies for benefits if they are age 62 or older. Coordinating your and your spouse’s benefit can greatly increase the amount of money you collect over your lifetime. ??

Should you die, your family may be eligible for benefits based on your work record. Family members who qualify for benefits include:

• A widow or widower – age 60 or older;
• Age 50 and older if disabled; or
• Any age if they are caring for your child who is younger than 16 or disabled and entitled to Social Security benefits on your record. ??

Unmarried children can receive benefits if they are:

• Under 18 years of age;
• Between 18 and 19 and are full-time students in a secondary school; or
• Age 18 or older and severely disabled (the disability must have started before age 22). ??????

5?? A Divorced Spouse May Be Eligible for Benefits ??

If you are divorced, you may qualify for Social Security benefits based on your ex-spouse's work record. To be eligible, your ex-spouse must have reached the age at which they are eligible to begin receiving benefits (although they do not necessarily need to be collecting them). ??

To qualify, you need to:

• Have been married to your ex-spouse for at least 10 years;
• Have been divorced for two years or longer;
• Be at least 62 years old;
• Be unmarried; and
• Not be entitled to a higher Social Security benefit based on your own work history. ??

If your former spouse is deceased, you may still receive benefits as a surviving divorced spouse (irrespective of the age they died) assuming that the criteria above have been met. If you remarry before the age of 60, you will lose the ability to receive a survivor benefit from your deceased ex-spouse. ??

If your former spouse is living, the maximum amount that you are eligible to receive is 50% of what your former spouse is due at full retirement age. To receive the maximum benefit, you will need to wait until you have reached your own full retirement age. ?

Your benefits are unaffected should your former spouse elect to take Social Security before reaching full retirement age or if your ex-spouse starts a new family. ??

Wow, that is a lot! ?? Because Social Security is so complex and there are countless claiming strategies, it is best to work with a trusted financial planning expert to help you make these decisions. ??