Are you thinking about making that initial claim for your Social Security benefits? This is a decision that can be hard to undo, and it can have a major effect on your financial situation throughout the entirety of your retirement.
Before you file for your Social Security benefits, you’ll want to make sure you know these four facts so you can make the right moves to maximize your chances at getting your checks on time and shoring up your financial security throughout your later years.
1. Know what your benefit amount will be
Before you claim your first check, you need to know how much you are supposed to get in benefits each month. There are two reasons for that.
First and foremost, your claiming decision will affect the amount of your benefit. If you claim ahead of your full retirement age (FRA), claiming now means you’ll end up permanently reducing the size of your monthly checks. If you claim at FRA, you’ll get your standard benefit, and if you claim after, you’ll get delayed retirement credits that will raise your check amount. Before you pull the trigger and begin your benefits, you’ll want to know how much you’ll receive and how waiting to start your checks could change the amount.
Second, you’ll also want to know how much your benefit is because it may be less than you think. Social Security is designed to replace about 40% of pre-retirement income. If you’re counting on it to provide more of your retirement money, you could find yourself facing a financial shortfall. It can be hard to undo a claim once you’ve made it, so if it turns out your benefit isn’t as big as expected and you need to hold off, it’s far better to know that upfront.
2. Know whether your benefit will be taxed
Social Security benefits aren’t taxed for everyone, but they’ll be taxed for you if your provisional income exceeds a certain threshold. Once your yearly provisional income goes above $25,000 as a single filer or $32,000 as a joint filer, at least a portion of your benefits will be subject to federal tax. Provisional income is half your Social Security benefit plus other taxable income and some income from non-taxable sources.
If your benefits are going to be taxed, you need to know that for two reasons. First, you may want to have taxes withheld from your checks to make sure you’re paying the IRS as you receive the money. Otherwise, you might have to pay quarterly estimated taxes to avoid potential penalties for not paying your tax bill on time.
You’ll also need to understand how taxes could affect the amount of benefits you get to keep, so you can plan for that when setting your retirement budget.
3. Know how you apply for benefits
If you’re applying for retirement, disability, or spousal benefits, you can do so online. You’ll need your date of birth; Social Security number; citizenship status; the date of birth of current or former spouses and the location and date of your marriage; and your bank information. You also have the option of applying by calling 1-800-772-1213 or by visiting your local Social Security office (although some offices remain closed in late 2020 due to COVID-19).
If you are applying for survivor benefits, you won’t be able to submit an online application. You’ll have to call 1-800-772-1213 between 7 a.m. and 7 p.m. Monday through Friday. You can also visit your local office if it is open.
4. Know when you should apply to start your checks
You can apply to start receiving benefits as early as four months before you want your first payment. For example, if you’re hoping to begin receiving benefits at age 62, you can apply when you are 61 years and eight months old.
You can also apply closer to the time you’re ready to receive your money, although the Social Security Administration encourages you to act sooner to provide time to process the application. If you’re already 62, you can apply and start your benefit in that same month — although you won’t actually get your first check until the following month, since benefits are paid in the month after they’re due.
Since there’s a little bit of lag time in getting your money, applying ahead of the time when you want your checks to come is generally the best option. Just remember, before you act, check out the tax rules, know your benefit amount, and ensure you’re confident you want your benefits to begin.