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About to Take Social Security? Read This First

Social security plays a major role in the financial security of more than 60 million Americans, and it's likely to supply a significant portion of your retirement income, too.

Don't assume that your benefits will just be what they will be, though, because there are ways to increase the size of those monthly checks you'll receive. To collect as much as you can from the program, spend some time getting familiar with it.

Image source: Getty Images.

Read this before starting to take Social Security.

How much retirement income you can expect from Social Security?

This is an important question, because once you've figured out how much money you'll need in retirement, you'll need to know how much of it Social Security will provide, and how much you'll need to generate on your own.

You can find out how much you can expect to receive in retirement from Social Security at the Social Security website. To give you an initial idea, though, know that the average monthly retirement benefit was recently $1,372, which amounts to $16,464 per year. If your earnings have been above average, though, you'll collect more than that -- up to the maximum monthly Social Security benefit for those retiring at their full retirement age, which was recently $2,687. (That's about $32,000 for the whole year.)

Most of us will want additional income beyond that, which we might create for ourselves through long-term investments in IRAs, 401(k)s, dividend-paying stocks, and/or annuity income. If you haven't saved much or enough for retirement, the table below shows how much you could still accumulate over various periods:

Growing at 8% for

$5,000 invested annually

$10,000 invested annually

$15,000 invested annually

10 years

$78,227

$156,455

$234,682

15 years

$146,621

$293,243

$439,864

20 years

$247,115

$494,229

$741,344

25 years

$394,772

$789,544

$1.2 million

30 years

$611,729

$1.2 million

$1.8 million

Calculations by author.

When is the best time to start collecting Social Security benefits?

Don't assume that you have to start collecting at 65. The normal (or "full") retirement age for Social Security is actually 67 for those of us born in 1960 or later, and 66 for millions born earlier than that. Despite that, we can start receiving benefits as early as age 62 and as late as age 70.

When you start collecting is a major factor in how big your checks will be. Start collecting at your full retirement age, and you'll receive your full benefits. But for every year beyond your full retirement age that you delay starting to receive benefits, you'll increase their value by about 8% -- until age 70. So delaying from age 67 to 70 can leave you with checks about 24% fatter. If your full benefits would have been $2,000 per month, they would grow to $2,480, a lot more. That's a meaningful difference of $5,760 over a year.

Start collecting at 62, and your benefits may be up to about 30% smaller. That can seem like a convincing reason to not start collecting early, but remember that though the checks will be smaller, there will be a heck of a lot more of them. The system is designed so that total benefits received are about the same for those with average life spans -- no matter when they start collecting. So think about whether you're likely to lead a life that's significantly longer or shorter than average -- as well as when you expect to really need the income. 

Image source: Getty Images.

How else can you increase your Social Security benefits?

There are some other ways you may be able to plump up your ultimate benefits. The formula that the Social Security Administration uses to compute your benefits is based on your earnings in the 35 years in which you earned the most. (They adjust these numbers for inflation.) Aim to have at least 35 years of income -- otherwise, if you only earned income in, say, 26 years, the formula will be incorporating nine zeros, which will shrink your benefits considerably. If you have worked 35 years, if you're now earning much more than you have in the past (on an inflation-adjusted basis), you might consider working for another year or two, as each high-earning year will kick a low-earning year out of the calculation.

Spousal strategies, if you're married, can also help you get the most out of Social Security. For example, if you and your spouse have had rather different earnings histories, you might start collecting the benefits of the spouse with the lower lifetime earnings record on time or early, while delaying starting to collect the benefits of the higher-earning spouse. That way, you get some income earlier, and when the higher earner hits 70, they can collect extra-large checks based on their earnings. Also, should that higher-earning spouse die first, the surviving spouse can collect that bigger benefit. Spouses can collect "spousal benefits" based on their partner's earnings history, too -- getting up to 50% of his or her benefits. Widows and widowers can choose to start receiving 100% of their late spouse's benefit instead of their own, too. Even divorcees can collect benefits based on their ex's earnings history -- if they were married for at least 10 years and have not remarried.

Will your Social Security benefits be taxed?

If Social Security benefits make up all or vast majority of your income, you likely won't be taxed on them at all. But if your income surpasses a certain level while you're receiving Social Security benefits, those benefits may end up taxed. No more than 85% of your benefits will ever be taxed, though.

To determine whether you'll have to pay taxes on Social Security benefits, you need to calculate your "combined" income, which is your Adjusted Gross Income ("AGI") plus non-taxable interest plus half of your Social Security benefits. The table below shows the taxation you can expect:

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. 

Keep learning more about Social Security, because the more you know, the more money you'll likely be able to receive from the program.

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