Carrie Schwab Pomerantz
(SET ITAL) Dear Carrie: Several of my friends and I (all in our early 60s) are understandably thinking about Social Security. Everyone seems to have different ideas -- and different information -- about when to apply for benefits, how to apply, and how much we can expect to get. Can you give us a straightforward answer on what we should know? -- A Reader (END ITAL)

Dear Reader: Since Social Security plays such a big part in people's lives, you'd think we'd have a better idea about how it all works. But on the contrary, a lot of folks don't fully understand their benefits or, more importantly, how to maximize them.

It's essential to take some time to consider your options before you apply, or you may miss out on thousands of dollars over your lifetime. There's a lot of helpful and detailed information at, but for starters, here are five important things you and your friends should focus on:


With all the talk about the future viability of Social Security, many people think they should apply for benefits as soon as possible. But there's more to it.

In a nutshell, if you file at the earliest possible age, 62, your benefit is permanently reduced. If you wait until your full retirement age (FRA), which would be 66 for you and your friends, you collect 33 percent more. Wait until 70, and your benefit goes up by a total of 76 percent!

There's a point where total benefits balance out (a larger check for a shorter time), but, generally speaking, if you're healthy and longevity runs in your family, you'll increase your total lifetime benefits by postponing your start date.


In terms of timing, you also have to consider your work plans. If you take benefits before your FRA, and your income exceeds certain limits, part of your benefit is temporarily withheld. In 2014, $1 dollar in benefits is withheld for every $2 you earn above $15,480. The year you reach your FRA, $1 is deducted for every $3 you earn above $41,400. However, you do get this money back as an increased monthly benefit once you reach your FRA.

Taxes are another thing. Regardless of when you take benefits, 50 to 85 percent of your Social Security income may be taxable if your modified adjusted gross income reaches certain levels. For 2014, that's between $25,000 and $34,000 for individuals, and between $32,000 and $44,000 for married couples filing jointly. Your benefit might also bump you into a higher tax bracket. Best to discuss this with your tax adviser.


Carrie Schwab Pomerantz

Carrie Schwab Pomerantz is a Motley Fool contributor.

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