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Six Things You Should Know About Social Security

If you’re like many people in the US who are close to retirement age, chances are you’ve been spending the past few years worrying about your 401(k), IRA, and other invested retirement accounts—and using them to plan for retirement. But Social Security is likely to make up a large part of your post-retirement income—approximately 50% of married retired couples receive about half their income from Social Security, and high-earners receive about 20% of their retirement income from it. Here are a few key things you should know about Social Security.

Social security is stable—but hard to plan around

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Planning for retirement isn’t easy. But you can count on Social Security. Bear in mind that you will get a bigger payment if you can wait to withdraw, and don’t let worries over a reduced payment stop you from working.

Unlike your 401(k) and IRA, your Social Security income is guaranteed to last for the rest of your life—and stay abreast of inflation. It won’t be hurt by fluctuations in the market, and you aren’t likely to suffer a huge income loss based on an economic downturn. Those are the good points.

However, determining how much you’ll get—and how to get the most possible—can be tricky. The amount you get per month depends on the age you retired, how much you and your spouse earned over your working lifetime, and whether you still work even though you’re retired. It’s a complicated equation for everybody.

Social Security will be there when you retire

Despite what politicians often say about the system hemorrhaging money, it’s highly unlikely Social Security will go away anytime soon. Money coming in from payroll taxes will cover all benefits until 2016, even if the current system isn’t changed. The Social Security Trust Fund is there to support the system as well, and if no more money comes in, the fund’s Treasury bonds would cover payments until about 2037. Even if that runs out, payroll tax income could conceivably cover about 75% of what you shofuld get in benefits for decades to come after that.

So even if the government does nothing to support Social Security, it’s not very unlikely your benefits will disappear. However, the Obama Administration has shown signs of interest in strengthening the system in the future—by leveraging Social Security taxes on people who earn over $200,000, for example.

You can get some of your spouse’s payment

There are situations where you can qualify to receive Social Security payments for your spouse. If your spouse dies, you can receive up to 100% of his or her Social Security benefits, as long as they’re higher than your own payments. You may also be eligible for these benefits if you’re divorced.

It can be better to wait

You can start drawing your Social Security benefits at age 62. However, the longer you wait to collect Social Security, the bigger your monthly check will be. That said, most people begin collecting before retirement age, which is currently at 66. If you can wait, you’ll have a bigger monthly check as your other retirement savings are starting to diminish—which can be a big help.

If you’re married, however, it gets more complicated. Some spouses qualify for spousal benefits, and it can be more effective for the higher-earning spouse to wait as long as possible while the lower-earning spouse should take out their benefits earlier.

You can actually raise your payments by working while retired

But only up until full retirement age. Before you hit that age, the federal government will reduce your payments by $1 for every $2 you earn over a specific annual limit—which is currently set at $14,160. However, you don’t lose that money permanently. Social Security will compensate you once you hit full retirement age for the money withheld before then. And that higher payment will go on for the rest of your life, no matter how long you worked.

You can also raise your Social Security earnings if you earn a higher wage while you’re drawing Social Security. That’s because the amount you receive is calculated based on the 35 highest wage-earning years you had. Potentially, you could earn a higher wage in retirement than you did in one of the other 35 years, boosting your payments again.

Your Social Security benefits may be taxed

Approximately a third of people who receive Social Security pay income taxes on their benefits—and it’s projected that as much as 42% will by 2018. You are less likely to pay taxes—or can reduce your taxes—by waiting until full retirement age to claim your benefits.

Planning for retirement isn’t easy. But you can count on Social Security. Bear in mind that you will get a bigger payment if you can wait to withdraw, and don’t let worries over a reduced payment stop you from working. Talk to a financial advisor about how Social Security should be factored into your retirement plans, and hopefully you’ll be able to get the most from your benefits.