Making Sense of Social Security Retirement Benefits

The idea for social security was first developed in Europe as response to families moving from farming to working for others as the world became industrialized. The first social security program was established in Germany in 1889.

In the United States, the Great Depression triggered an economic crisis that caused millions of seniors to become impoverished. In an attempt to provide economic security, the Social Security Act was passed in 1935 by President Franklin D. Roosevelt.

The original Social Security retirement program provided benefits only to the worker, and only retirement benefits. In 1939, the act was amended to provide benefits to spouses and children for both retired and deceased workers.

The monthly retirement benefit didn't begin until 1940, and the first recipient was Ida May Fuller a retired legal secretary.

Since then the program has been amended to include COLAs (cost of living adjustments) and disability benefits. Medicare wasn't introduced until the 1960s.

To see the full history of Social Security, please visit Social Security History.

First a disclaimer: Social Security retirement benefits can be very complicated, so you should consult with a Social Security specialist before making any final decisions regarding your retirement benefits.

Having said that, here are some tips to help you get the maximum Social Security retirement benefit you are entitled to:

Maximize Your Social Security Earnings:
Your retirement benefit is based on your top 35 years of earnings so it's important to get as many "high earning" years in as possible. Because of this, working just one year longer in a high paying job could make a big difference in your retirement benefit.

Delay Taking Your Social Security Benefits
You are penalized for every month you take your Social Security before you reach your full retirement age, with the maximum penalty being 25% if you start taking benefits at age 62. While starting your benefits early might be tempting, those who are patient can increase their benefits by up to 30% (including COLA adjustments) by waiting until full retirement age.

Work Part-Time During Retirement
While you are limited in how much you can earn if you are under full retirement age and collecting Social Security, once you reach full retirement age you can earn as much as you want without your retirement benefits being reduced. Another idea is to take a part-time job after you retire so that you can delay taking SS benefits.

Collect Based On Your Spouse's Earnings
If you're married, you can withdraw Social Security retirement benefits based on your own earnings, or you can collect half of your spouse's benefit, whichever is larger. If you and your spouse aren't the same age, you may need to do some planning to make sure you maximize your benefits, but this is definitely a strategy to consider if one spouse earns significantly more than the other, or if one spouse has been out of the work force for many years.

Tap Into Your Ex's Benefits
The spousal benefit applies to ex-spouses too. If you were married to your ex-spouse for at least 10 years, and you aren't currently married to someone else, you can collect up to 50% of your ex spouse's benefits. You don't have to communicate with your ex-spouse to claim your benefits; in fact they will never know unless you tell them, and it won't affect their benefits in any way.

These are just a few tips to help you maximize your Social Security retirement benefits. Withdrawing your Social Security benefits can be a very complex decision, so please consult with a professional before you make any decisions.

One of the most commonly asked Social Security questions is "is Social Security taxable?"

The answer is... it depends.

Your Social Security benefits could be taxable, depending on your other income and your marital status.

Generally, if Social Security is your only income, then it is not taxable.

However, if you have other income from wages, investments or even tax exempt income, your Social Security could be taxable.

For 2008, if your total income including 1/2 of your Social Security income and any tax exempt income you have totals $25,000 (for Single, Head of Household and Qualifying Widows) or $32,000 (for married taxpayers filing jointly), then up to 50% of your Social Security benefits will be subject to tax.

However, if your income is higher, then up to 85% of your benefits could be subject to tax. If your total income (as defined above) is over $34,000 ($44,000 if you are filing married filing joint), then up to 85% of your Social Security benefits are taxable.

For more information including examples, please read Publication 915: Social Security and Equivalent Railroad Retirement Benefits.