5 Social Security Rules You Should Know by Heart

Don't be caught off guard by important rules you never learned -- they can end up costing you a lot.

Selena Maranjian (TMFSelena) Oct 26, 2019 at 3:30PM

There are lots of rules we should know by heart, such as "always say thank you," "don't text and drive," and "be sure to eat plenty of vegetables." There are rules related to lots of facets of our lives, including our finances, and the better we know -- and heed -- them, the more secure our lives are likely to be, especially in the future.

Here, then, are five Social Security rules you should know. See whether any of them are new to you, and tuck them away for whenever you're working on your retirement plan or you have to make decisions related to Social Security.

No. 1: When you start collecting benefits affects the size of your checks

First, know that there's no one-size-fits-all Social Security benefit check. Those who earn more in their working lives are likely to get fatter checks in retirement. You're not solely at the mercy of your salary, though -- you can also influence the size of your checks via the age at which you start collecting Social Security.

You can claim your retirement benefits as early as age 62 and as late as age 70, and your checks will be bigger (or smaller) if you start later (or earlier) than your full retirement age. That's the age at which you're entitled to your full benefits, and for most of us, it's 66 or 67 or somewhere in between. The table below shows the effect of waiting or claiming early. If your full retirement age is 67, for example, and you start collecting at age 62, your checks will be about 30% smaller -- though, of course, you'll collect more of them than if you delayed. Wait until age 70 to start collecting, and your checks will be 24% larger than if you'd started at 67.

Start Collecting at:	Full Retirement Age of 66	Full Retirement Age of 67
62	75%	70%
63	80%	75%
64	86.7%	80%
65	93.3%	86.7%
66	100%	93.3%
67	108%	100%
68	116%	108%
69	124%	116%
70	132%	124%

SOURCE: SOCIAL SECURITY ADMINISTRATION.

No. 2: You can make your benefit checks even bigger

Next, know that there are other ways to make your checks bigger. For example, the formula used to determine benefits is based on your (inflation-adjusted) earnings in the 35 years in which you earned the most. If you were planning to stop working after working only 30 years, your benefits will be smaller, because five years' worth of zeroes will be factored in. Aim to work at least 35 years. And if you can work any more years with above-average earnings, know that each of those years will replace a year with smaller earnings, thereby increasing your benefit checks.

Another way to get the most out of Social Security is to coordinate with your spouse if you're married. For example, one of you might start collecting early so that the two of you get some Social Security income, while the other delays as long as possible. Ideally, the one with the higher earnings record will delay to end up with the largest checks possible. Then if one of the partners dies, the surviving spouse, who can collect either (but not both) of the two benefits, can receive the one that has been maximized.

No. 3: Benefits may be available even if you have little or no earnings

Another Social Security rule to know is that even if you have little or no earnings, you might be able to collect some benefit checks. Generally, you need to be married (or to have been married for at least 10 years in the case of divorce) to someone who qualifies for Social Security benefits so you can file for spousal benefits, which amount to up to 50% of that spouse's full-retirement-age benefits. The rules for spousal benefits are a bit tricky, so read up on them -- doing so is well worth it if it means you get some unexpected income! (There are special rules, for example, if dependent children under the age of 16 are involved.)

No. 4: Social Security benefits can be taxed

Next, don't assume that you'll get to keep every single dollar of your Social Security benefits -- some Social Security benefits may be taxed. They become subject to taxation if you're working in retirement and earning more than a certain threshold. Depending on how much you earn, up to 50% or 85% (but never more than 85%) of your benefits may be taxed. Your "combined income" is used to determine whether taxation occurs. It's your adjusted gross income (AGI) plus nontaxable interest plus half of your Social Security benefits. The following table has the details:

Filing As	Combined Income	Percentage of Benefits Taxable
Single individual	Between $25,000 and $34,000	Up to 50%
Married, filing jointly	Between $32,000 and $44,000	Up to 50%
Single individual	More than $34,000	Up to 85%
Married, filing jointly	More than $44,000	Up to 85%

SOURCE: SOCIAL SECURITY ADMINISTRATION.

If you're thinking of working in retirement or are trying to decide when to start collecting your benefits, it's good to keep the information above in mind and to crunch a few numbers.

Note, too, that some states tax Social Security benefits, while many states do not.

No. 5: Social Security is only designed to provide some of your retirement income

Finally, understand that Social Security is never likely to fully replace your regular working income. The program was designed to replace about 40% of the average retiree's preretirement income. (It's likely to provide less than 40% for high earners and more than 40% for low earners.)

To be more specific, the average monthly Social Security retirement benefit was recently $1,475, or about $17,700 annually. Naturally, if you earned an above-average income over your working life, you'll get more, and many will get less. But no one will be receiving, say, $50,000 or $60,000 annually from Social Security.

To best plan for your own Social Security decisions, go to the Social Security Administration (SSA) website and open a my Social Security account. Once you have that, you can log in any time and see the SSA's record of your earnings and its estimates of your future benefits. It's smart to correct any errors you see so that you receive all the benefits you actually earned.

It's vital to learn about Social Security and make savvy decisions regarding it, as Social Security income is a major part of most Americans' retirements. Indeed, 50% of married elderly Social Security beneficiaries and 70% of unmarried ones get 50% or more of their income from it, per the SSA, with millions getting fully 90% or more of their income from it.

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