“I am the wisest man alive, for I know one thing, and that is that I know nothing.”

– Plato

Social Security is pretty complicated.

Most of us will be able to sign up for benefits once in our lifetime, so it’s not something that we will likely ever become an expert on. And yet for many people, Social Security is one of the single most important factors impacting their retirement.

Social Security is money that you’ve earned over the years and I would like to make the best use of it, and that means understanding the system and making good choices when that time comes.

So with that in mind, here are the 5 things you should absolutely know about Social Security:

Your last 3-5 years of earnings don’t matter as much as you think

Have you ever heard anyone say that they were thinking about moving into a part time or contract role and slowly ease into retirement, but would never make the move because it would reduce their future Social Security payout too much?

Most people think that the Social Security Administration weights the last 3 or 5 years of earnings heavier than other years as the measure for benefits.

Luckily, this isn’t true!

The calculation actually uses the highest 35 inflation-adjusted years of your earnings. This means that they will go back to every year that you have earnings history and count the highest 35 years…and they don’t need to be consecutive.

They will also beef up those early years by applying an inflation factor, which essentially puts all of your years on an even playing field using today’s dollars.

No need to keep running at full speed just for benefit purposes. If you are ready to start easing in to retirement, Social Security shouldn’t get in your way.

Social Security benefits are about more than just retirement

The Social Security system can also provide income should you become disabled.

In 2019 around 13% of all Social Security benefits administered will go towards people with disabilities and their dependents. That’s over eleven billion dollars!

This is important, because disability is a major contributor of people falling out of the middle class and into poverty.

Tom Clark, a friend of mine who worked for the Social Security Administration for 33 years and has seen just about every situation that you can imagine, states that we have a 25% chance of becoming disabled before retirement age.

Social Security payments can help bridge the gap until the retirement benefits kick in. For many people, this potential benefit is their one and only protection against financial catastrophe from a disability.

Think about your spouse’s future, too

When the higher wage earner dies, his or her spouse will start receiving their higher monthly Social Security payout.

This is an often overlooked benefit that you need to be aware of when you choose the start date for benefits.

Why is this important? As you already know, waiting to start benefits until age 70 can increase your monthly Social Security retirement benefit.

Many people fail to think about the potential higher income of the lower-earning spouse when they make this decision. Here is what I mean: instead of deciding when to start benefits based on your life and your life expectancy only, consider (especially if you are the higher wage earner) basing your decision on the life expectancy of you and your spouse combined.

This essentially increases the likelihood of the higher benefit amount being paid years past your normal lifetime.

Widows and widowers have options that others don’t

Widows and widowers can take their own benefits first and switch to a higher widow’s benefit later.

They could also do the opposite if their own benefit is higher. They could take the lower widow’s benefit first and switch to their own later.

This can essentially create some “free money”.

For example, let’s say that someone lost their lower wage earning spouse. The surviving higher wage earner could delay taking their own benefit until age 70, thus maxing out their own lifetime benefit.

Now, instead of just waiting until 70 for some Social Security income, they could apply for benefits on their deceased spouse’s record once eligible. They would continue that income until they hit 70 and then switch to their higher…maybe much higher…benefit.

See, free money!

There is still a loophole for some of you that could increase your benefits.

Similar to the option detailed in number four, there could possibly be a way for you and your still-living spouse (sounds a little morbid) to take advantage of what I call free income.

If you turned 62 before the end of 2015, you are grandfathered into the restricted application strategy and could possibly take spousal benefits only at your full retirement age while you delay…and increase…your own benefits until age 70.

For all of us that do not qualify, if we delay our benefits until 70 we cannot start taking any other income until then. For those that do qualify, you may be allowed to start taking a benefit at full retirement age based on your spouse’s earnings history until you hit 70 and then switch to your higher benefit.

“I have been impressed with the urgency of doing. Knowing is not enough; we must apply. Being willing is not enough; we must do.”

– Leonardo da Vinci

Hopefully these 5 tips help you when it is your time to start your Social Security income.

The entire set of rules and guidelines is quite complicated. Make sure you get professional help when you are exploring your options.


CLICK HERE to become an Insider! Join my Email Insider Group to receive weekly tips and tricks on finance, education, home buying, insurance, Social Security and everything in between. Byron W. Ellis, CFP®, CLU®, ChFC®, CRPC®, is a CERTIFIED FINANCIAL PLANNER™ professional and Managing Director United Capital Financial Advisers, LLC, a Financial Life Management firm. The information contained in this article is intended for information only is not a recommendation, and should not be considered investment advice. Please contact your financial advisor with questions about your specific needs and circumstances.

© Byron Ellis