You’ve paid into it your whole life, and now that you’re entering your golden years, it’s time to think about claiming Social Security. It’s a complex process, but it will go much more smoothly if you’re well-informed. Here are some things you’ll need to figure out before determining how you want to proceed.
You Can Take Your Payments Early, For a Cost
Social Security is technically a program for seniors aged 67 and up (66 for those born before 1955), but you can receive it as young as age 62 if you’re willing to forfeit up to 30% of your expected monthly payout. This deficit will not be resolved when you turn 67, either—once you’ve begun to draw funds, you’re locked into your current rate for life. Conversely, if you hold off on claiming Social Security past the age of 67 (up to age 70), your benefit amount will grow substantially for each year you wait. For this reason, taking early payments is generally not recommended unless you’re in a very dire situation, but it may be the best option available for those who need the support as soon as possible.
There’s More Than One Kind of Benefit
There are three types of Social Security benefits, each with a different purpose and method of determination: retirement, spousal, and survivor. The retirement benefit is the one you are entitled to based on your lifetime earnings. The spousal benefit is 50% of what your spouse is entitled to; and lastly, the survivor’s benefit, which is some portion of the benefit amount that your spouse would have been entitled to (regardless of whether they had begun to claim it prior to their death or not).
When you begin the process of claiming Social Security of any type, you are recorded as having laid a claim on both the retirement and spousal amounts, but you will only actually receive the highest of the two. The last, the survivor’s benefit, will still grow over the years, and you can switch to it at any time (provided your spouse is deceased, of course). You can also start to receive it earlier than either of the other two types of benefits under certain conditions, such as if you are disabled or are caring for a dependent child of the deceased. In that case, you can do the reverse, letting your other two benefit amounts grow while drawing the survivor’s benefit beforehand. You can still only claim one of the three benefit types at any one time, though.
Receiving a Government Pension Cuts Your Benefits
Some people working in government jobs do not pay any Social Security tax but do receive a pension based on years of service. In such a case, you may or may not be eligible for Social Security benefits (depending on whether you worked other jobs to pay into it or can claim through a spouse), but if you are, the amount you receive will be reduced. This reduction is called the Government Pension Offset, and it calls for Social Security benefits received by people who are already receiving a government pension to be reduced by two-thirds of that pension amount. This means that if your Social Security benefits were worth less than two-thirds of what your pension benefits will pay, you won’t receive any Social Security payments at all.
Earnings Clawbacks May Apply
If you do decide to begin claiming Social Security early, you should also be aware of the fact that there is an annual earnings limit of $16,920—earn any more than that, and your benefits will be reduced (the reduction percentage is based on how close you are to the full retirement age). This restriction does get removed when you reach full retirement age, and it gets increased to $44,880 for the year in which you hit that age, too. Given that it will typically only get harder to increase your income as you get older, though, that concession isn’t helpful to most early claimants.
If you plan to continue working in any substantial way in your early sixties, be aware that you’ll probably only receive part of your already-reduced benefits. In this scenario, it only makes sense to wait to stake your claim when you know you’ll be working a lot less, if at all. Not only will you not face clawbacks, but you'll be able to claim a higher amount at a time when you're more likely to need it.
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