Make sure you understand how Social Security works before you start drawing benefits.

4 minute read

In an ideal world, we could all use our Social Security retirement benefits to supplement the retirement savings we’ve amassed over decades of sweating away at demanding jobs and investing wisely. That’s true for many, but sadly, most Americans aren’t in that situation when they retire.

In fact, among those old enough to draw social security retirement benefits, around 21% of married couples and about 45% of single people rely on their monthly social security check for 90% or more of their income, according to the Social Security Administration (SSA). The average monthly benefit: $1,514.

Whether you’re looking forward to a comfortable retirement or plan to rely mainly on social security benefits to get by, it pays to know as much as possible about when to start drawing your benefits, whether you’ll be taxed and other important factors.

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1. Sign up for an SSA account

Signing up for my Social Security account allows you secure access to your Social Security statement, earnings history, and estimated benefits. You can also use the account to check the status of a benefits application, request a replacement Social Security card, and manage benefits once you begin receiving them.

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2. You can find estimated benefits online

You can use the SSA’s Retirement Benefits Estimator to get an estimate of how much your monthly Social Security benefit will be if you start drawing benefits at age 62, your full retirement age (66 and ten months if born in 1959, age 67 if born 1960 or later) or at age 70.

Want to find out your monthly benefit if you begin drawing benefits at another age between 62 and 70? Use my Social Security Retirement Calculator to find out what your monthly benefit would be at a specific age. The amount shown is an estimate based on your earnings. Once you apply for benefits, the SSA will give you an exact monthly figure.

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3. Report income inaccuracies

When looking up your estimated benefits, always make sure yearly income amounts are correct, since your monthly benefit will be based on those amounts. Contact the SSA directly to correct your Social Security earnings record.

Generally, you aren’t able to correct the earnings amount listed after three years, 15 months and 15 days from the end of the taxable year when the wages were paid. However, under certain circumstances, you may still be able to correct your record after that period.

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4. You can begin drawing Social Security at age 62

You can start drawing Social Security retirement benefits at age 62, but that may not be the best financial move. That’s because your monthly benefit amount increases with each year you wait to sign up for Social Security. Begin drawing benefits at 62, and your benefit could be reduced by as much as 30%.

If you begin receiving Social Security benefits at 62, the only increase you’ll see in your monthly check after that is a tiny cost-of-living adjustment (COLA) annually. For example, the cost-of-living increase for 2021 is 1.3%, which would add only about $20 to a $1,500 monthly benefit.

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5. Wait until full retirement age for a bigger check

If you can hold off on drawing Social Security until your full retirement age, your monthly benefits check will be much higher. To find out your full retirement age, type in your birth year to the SSA’s Retirement Age Calculator. How much of a difference can waiting a few more years to claim benefits make in your benefit amount? A lot.

Every 12 months after age 62, your benefit amount increases by 8%. So, let’s say your monthly benefit at age 62 is $716. If you waited until your full retirement age of 66 and eight months, for example, your monthly benefit would be $1,026. Wait until age 70, the last year you can begin drawing Social Security, and your monthly benefit would be $1,266.

Find out: 6 Ways Downsizing can Stretch Retirement Income

6. Consider your spouse

When choosing the age to start receiving Social Security, keep in mind that your spouse may be eligible for a benefit based on your earnings. So, if you choose to start receiving benefits before your full retirement age, the amount your spouse could receive after your death will be significantly reduced.

Find out: 7 Reasons to Work Part-Time in Retirement

7. You can still earn additional income

Just because you’re drawing Social Security doesn’t mean you have to stop working. There are limits to how much you can earn in a year, though. In 2021, for workers younger than their full retirement age, the earnings limit is $18,960. If you exceed that amount, the SSA deducts $1 from benefits for each $2 earned over $18,960.

The earnings limit for people hitting their full retirement age in 2021 is $50,520. If you go over that amount, the SSA deducts $1 for each $3 earned over $50,520 until the month you turn full retirement age. However, there’s no limit on earnings for those who are full retirement age or older for the entire year.

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8. You may have to pay taxes on benefits

Depending on the state you live in, you may have to pay state income taxes on a portion of your social security benefits. You may have to pay federal income taxes of up to 85% on Social Security benefits if your income exceeds the IRS threshold.

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About the Author

Deb Hipp

Deb Hipp

Deb Hipp is a full-time freelance writer based in Kansas City, Mo. Deb went from being unable to get approved for a credit card or loan 20 years ago to having excellent credit today and becoming a homeowner. Deb learned her lessons about money the hard way. Now she wants to share them to help you pay down debt, fix your credit and quit being broke all the time. Deb's personal finance and credit articles have been published at Credit Karma and The Huffington Post.

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