Learning the basics of Social Security is no small feat. Your benefits will depend on many things, including how much you paid in over the years and what age you are when you apply to start your retirement benefits.
Many people also get the enrollment dates and rules confused with Medicare which can further complicate your understanding of what you are eligible for.
So, here are some of the Social Security basics that all Americans should know:
Your Social Security and Medicare Eligibility Dates are Different
Workers who have earned the necessary work credits can apply for Social Security retirement benefits as early as age 62. Your Medicare eligibility date, however, is later.
You are eligible to sign up for both Medicare Part A and Part B at age 65, regardless of whether you have signed up for retirement income benefits yet.
When you enroll in Social Security does, however, affect whether your Medicare enrollment is automatic or self-initiated.
If you sign up for Social Security before age 65, Social Security will automatically enroll you into Medicare age 65.
Your card will show up in your mailbox shortly before you turn 65, and your Medicare Part B premiums will be deducted from your Social Security income check each month.
If you delay enrollment into Social Security, however, you will need to actively enroll in Medicare at 65. The SS office will bill you for your Part B premiums until such time that you enroll in Social Security retirement benefits.
You Can Enroll in Both Social Security and Medicare at the Same Website
While you can certainly go down in person to sign up for Social Security and Medicare, many people prefer not to wait in line. You can sign up for both Medicare and your Social Security benefits online at www.ssa.gov.
If you are taking Social Security earlier than you become eligible for Medicare, that’s okay. You can use the website to sign up for income benefits now. Later when you turn 65, you can return to the same website to enroll in Medicare.
The reverse is also true. If you are delaying enrollment into Social Security for a bigger check down the road, you can still use the SSA website to sign up for just Medicare at 65.
You Need 40 Credits to Qualify for SS and Premium-Free Part A
To qualify for a Social Security Retirement benefit, you must have earned 40 credits (or quarters), which is equivalent to 10 years of earnings or work.
Likewise, to qualify for premium-free Medicare Part A at age 65, you need to have the same 40 quarters of work. This needs to be employment during which FICA taxes were deducted from your paychecks to go toward your future Social Security retirement benefits and Medicare hospital benefits.
People with fewer quarters may still be able to qualify for Social Security disability benefits in the event of a disability. Also, if you are married and you have the work history, but your spouse does not, your spouse can still qualify for these same two benefits under your work history.
While this is the minimum you need to qualify, many retirees these days may have worked for 40 years or more. That’s okay because your benefit will be based on the highest 35 years of earnings over your work history.
Enrolling in Social Security Early Will Reduce your Monthly Benefit
Though you are eligible to sign up for Social Security benefits as early as age 62, there is a significant effect on your monthly income benefit level to do so.
The amount of your benefit is based on your Full Retirement Age (FRA). Waiting to apply for benefits at your Full Retirement Age means you will get 100% of the benefits that you qualify for. Taking those benefits at age62 would reduce them by 25%. The reduction is permanent, so think carefully before you enroll.
People born between 1943 and 1953 do not reach their FRA until they turn 66. Someone born in 1954 will reach their FRA at age 66 and 2 months. Likewise, someone born in 1955 would reach their FRA at 66 and 4 months, and so on.
People born in 1960 or later will reach FRA at age 67. The main thing to keep in mind is that for every month that you take benefits before your FRA, you will be giving up a small percentage of your benefit.
This can add up to tens of thousands of dollars over time, so be sure to consult a financial planner before you decide when to apply.
Delaying Enrollment into Social Security Will Increase Your Monthly Benefit
Just as filing early will reduce your benefit, waiting to claim your benefits will increase them.
A person whose FRA is 66 will see their Social Security check increase by 8% for each year they delay their benefits. This reaches a maximum of 32% at age 70. Waiting past age 70 will not gain you any additional benefits, so be sure to file no later than age 70.
Be sure to consider that Medicare Part B premiums cost a minimum of $135.50 per person in 2019. This gets deducted monthly from your income benefits, so delaying your Social Security benefits enrollment by a year or two can significantly help to cover this cost.
Delaying your enrollment into Social Security can also have an impact on your surviving spouse in the event of your death. If other eligibility requirements are met, your widow(er) can collect 100% of the benefit you were receiving or eligible to receive when he or see she reaches their Full Benefit Age.
Watch out for the Earnings Limit When Filing Before your FRA
Many people work well into their 60’s and even 70’s today. You can work and earn Social Security benefits at the same time, but there’s a limit. So, if you plan to work past age 62, you need to think carefully before you file early for Social Security benefits.
Until you reach your FRA, earnings beyond a certain limit will cause Social Security to withhold benefits. This limit changes a bit each year, but if you think you will earn more than the limit, it may be wise to delay enrollment into Social Security benefits until you reach FRA.
Here are the earnings limits for 2020:
One piece of good news is that the benefits withheld are recalculated and added back into future benefit years. So while Social Security withholds them now, they are not forever lost.
Fortunately, once you reach FRA, there are no more earnings limits. Social Security will not withhold benefits even if you earn 6 figures. Some of your Social Security earnings can be taxed though depending on how much you can earn, so be sure to consult your CPA.
Your Work History Can Benefit Your Spouse
Even if your spouse has never worked, he or she can still qualify for a Social Security benefit based on your work history. Your spouse will qualify for 50% of your benefit at his or her Full Retirement Age.
If both spouses have worked the necessary 40 quarters, then the spousal benefits will be based on the higher-earning spouse so that you can maximize your total benefits.
Keep in mind though, that spousal benefits are based on the Full Retirement Age. If your spouse decides to take his or her benefit early, that 50% benefit will be reduced.
For example, let’s say Karen is eligible for a $1000 spousal benefit off Joe’s work record. Assuming her FRA is 66, she needs to wait until age 66 to file for that benefit and get $1000/month. If she files early, her monthly benefit is permanently reduced. Filing at age 62 would result in a benefit of just $700/month for the long run.
Ex-spouses qualify for benefits too, under certain conditions, if the marriage lasted at least 10 years.
Check Your Earnings History and Estimated Benefits at MySocialSecurity.gov
It’s important to check your Social Security Statement for accuracy every so often. Fortunately, that’s easier than ever to do by setting your online account at mysocialsecurity.gov.
Here you will find a record of all the years of your earnings. Be sure to check for any Zero Years that may be inaccurate. Sometimes earnings information fails to post to the right place, which can result in showing that you earned nothing in a year when you know you had earnings.
You can easily correct these by showing your W-2 or paystubs to Social Security. However, if you don’t know there is a Zero Year because you never check your statement, then you may no longer have W-2 records for a year that is long in the past.
That’s why it’s a good idea to set up your online account and log in once a year to check it. The account also will give you an estimate of the monthly income check amount you can expect at your full retirement age, as well as the amount at age 62 and 70.
You’ll want to have this information in hand whenever you meet with your financial advisor. He or she should have a good handle on these Social Security basics and can help you determine where your Social Security retirement benefits fit into the overall picture of your retirement.
Continue Learning Your Social Security Basics
Not too long ago I had the opportunity to interview a true expert when it comes to Social Security. Devin Carroll is a financial advisor and friend whom I trust with any Social Security question. Our video about Social Security basics is a great one to watch if you are coming up on retirement and need to understand what role your Social Security income will play in your future financial security.
And if you are still learning your Medicare basics, we can help with that. Click here to work with one of our Medicare experts who can help you sort through your options for supplemental and drug coverage.