5 social security basics everyone should know

You’ve been making FICA (Federal Insurance Contributions Act) payments since your first paycheck, and now you’re getting close to claiming your Social Security benefits as a retiree. But before you decide to hang up your boots and stop working, it’s wise to learn how to maximize your Social Security benefits. Social Security, for many retirees, “represents the only guaranteed, cost-of-living-adjusted source of income in retirement that lasts as long as you do,” says Mary Beth Franklin, a certified financial planner and contributing editor at Investment News. “Given the decline of company pensions, that’s a big deal.” Here are five essential things to consider before making any big decisions.

1. Hold off for as long as you can. Delaying drawing Social Security past the age at which you’re eligible for full benefits has a significant upside—to the tune of eight percent more per year that you wait. “That means if your full retirement age is 66 and you work until 70, you have a 32 percent increase in your benefits (four years times 8 percent), guaranteed,” Franklin says.

2. Consider your health. Not everyone will be able to continue to work until age 70. Health issues (yours or your spouse’s) or a physically taxing job may make that choice for you. If you have some savings or a pension to rely on, or if you decide to work part-time, you can still delay claiming Social Security even though you’ve stopped working full-time.

3. Watch extra earnings. If you claim Social Security benefits before your full retirement age but continue to earn any income, you could lose out, says Franklin. “There’s an earnings cap, which this year is $17,040. You’ll sacrifice $1 of benefits for every $2 you earn in wages or self-employment income over that amount.” That rule goes away once you reach full retirement age, when you can take your maximum benefit and continue to earn money through a part-time job or business. 

4. Don’t depend on Social Security alone. Ideally, Social Security will cover some everyday costs, but don’t assume it will be enough to live on. “If you’re lucky enough to have a pension plus Social Security, that may be enough to cover basic living expenses,” says Franklin. But she recommends that individuals take into account all of their financial assets to try to bolster their retirement income. That may mean downsizing your property and banking the difference—or taking out a reverse mortgage, in which the proceeds are tax-free for income in retirement. In both cases, make sure to speak with a financial planner or attorney to discuss the risks and benefits. Retirees can also seek part-time jobs. “The gig economy really works for many older people,” Franklin says, who notes that the fastest-growing Airbnb host demographic is women age 60 and older. 

5. Get help. Don’t assume you can easily go it alone when it comes to financial decisions in retirement. Affordable help does exist. “Even one session with a financial planner can give you a good starting point,” says Franklin. If you haven’t already done so, set up a My Social Security account with the Social Security Administration (SSA). Use the SSA’s free online calculator to help you get a snapshot of what you can expect your benefits to be. Or try Maximize My Social Security, a $40 program developed by a Boston University economics professor that lets you test a range of scenarios to determine what’s best for you.