3 social security rules that could catch you off guard

Social Security is one of the most important benefit programs in the United States because it is a crucial source of retirement income for the elderly. Unfortunately, there are many confusing rules that affect the amount of benefits older Americans find themselves in.

If you don’t know these rules, you might have a nasty surprise when it comes to your retirement checks. To make sure you don’t get caught off guard, here are three Social Security quirks you should be aware of.

1. Spousal benefits do not increase by delaying beyond FRA

You have probably heard experts advise you to wait to claim Social Security in order to increase the amount of your monthly checks. And in most cases, that’s good advice.

Delaying a claim for benefits can result in a substantial increase in the amount of monthly income provided by Social Security. You can avoid early reporting penalties by not claiming before full retirement age, and can earn deferred retirement credits by waiting even longer until age 70.

But there is a caveat if you are applying for spousal benefits: you not see an increase in your monthly checks if you claim after your FRA (which, depending on the year of birth, is between 66 and 2 months and 67).

If you will receive benefits on your spouse’s employment file, there is no benefit to waiting to file after FRA. Unfortunately, if you don’t know about this program quirk, you might needlessly miss out on the income you are entitled to.

2. Working can mean giving up some of your benefits

If you have not yet reached full retirement age and decide to work and earn extra income after claiming Social Security benefits, that decision could cost you dearly.

Earning too much money while receiving retirement benefits can result in the loss of some of your checks. You will lose $ 1 for every $ 2 of income earned above $ 18,960 if you do not earn FRA in the year you work, and you will lose $ 1 for every $ 3 of income earned in the year. over $ 50,520 in the year you reach FRA.

This strange rule could leave you with a lot less money than you expected if you are relying on a paycheck and Social Security. Once you reach your FRA, you are ultimately credited with months of benefits that you did not receive, and your future checks will be higher because of it. But it can take a long time for the resulting slightly higher monthly benefits to make up for the missed income.

3. Your benefits could be taxed

Surprisingly, the IRS begins to tax a portion of your Social Security benefits once your interim income reaches $ 25,000 as a single filer or $ 32,000 as a married spouse filer. Provisional income includes all taxable income, some non-taxable income, and half of your social security benefits.

If you live in one of the few states that impose their own tax on Social Security benefits, you may also be subject to state income tax.

If you thought you could keep your full Social Security check without cutting taxes, this rule could come as a shock and make budgeting more difficult.

You don’t want to be caught off guard by unexpected taxes, an unexpected loss of benefits, or simply receiving less income than expected because you are not entitled to deferred retirement credits. So make sure you know the weird rules of the Social Security program when planning for your retirement in order to develop a realistic picture of how much financial help your benefits will bring you.