Your ultimate guide to Social Security

As you toil away at your job in your 20s, 30s and 40s, you may not be thinking about the financial safety net you’re quietly building for your retirement years.

Knowing when to take Social Security just might be the most important decision you’ll make in retirement. Claim benefits early and you and your spouse will face a steep and permanent cut in monthly income.

How Social Security is Computed

Your Social Security retirement benefit is based on your lifetime earnings. The higher your earnings, up to a maximum taxable amount of $137,700 a year, the higher your benefit.

Maximizing Your Social Security Benefit

If you’re in good health and don’t have enough put away to maintain the standard of living you’re accustomed to, then keep working. As you near retirement, you may well be at the top of your earnings game, allowing you to maximize your Social Security benefit and your savings for retirement.

The 62/70 Split

If both people are in good health, delay claiming your benefit until age 70 to collect the highest payout possible.

File and Restrict

Congress is phasing out this option, too. Anyone born on or before Jan. 1, 1953, however, is grandfathered in and will still be able to file a restricted application.

Claiming Survivor Benefits Early

Look before you leap. Each person’s situation is different so the decision to take the benefit early is a personal one.

Your Retirement Income Stream

To maintain your standard of living in retirement, financial experts say you’ll need about 70 percent of your current income. As a result, financial planners have long recommended that Social Security benefits be viewed as just one leg of a “three-legged stool” needed for financial security in retirement.

The Three-Legged Stool

Social Security is perhaps the strongest leg of the stool, providing 37 percent of all income for Americans age 65 and older. It’s especially important to older Americans with lower incomes. Nearly a fourth of all Social Security beneficiaries have no other source of retirement income.

Social Security and Women

Women today who reach age 65 outlive men, on average, by 2.3 years (86.6 years versus 84.4 years). With their longer lifespans, women tend to live more years in retirement than men, are more likely to be widowed and are at greater risk of exhausting their sources of income.

Spousal Benefits

Claiming the spousal benefit before your full retirement agewill trigger Social Security’s benefit-reduction—or “deeming”—rules. If you retire at age 62, for example, your benefit could be as little as 32.5 percent of your spouse’s primary insurance amount. If you wait until full retirement age, your benefit could be 50 percent of your spouse’s benefit amount.

Working and Collecting Social Security

You can get Social Security retirement benefits and work at the same time, increasing your household income. Now the not-so-good news: Social Security will reduce your benefits but only if you are younger than your full retirement age and your earnings exceed certain yearly limits.