Top 10 Things You Must Know About Social Security's 2,728 Rules

How are you supposed to navigate the foundation of your retirement financial life if you can't make any sense of it?

Social Security has 2,728 rules -- and each of those rules has exceptions. How are you supposed to navigate what is arguably the foundation of your retirement financial life if you can't make any sense of it? Mary Beth Franklin, contributing editor of Investment News and author, offers these suggestions as the top things you need to know:

1. You probably shouldn't file for benefits if you are still working.

If you plan to keep working, it generally makes no sense to claim Social Security benefits before your full retirement age, said Franklin.

Full retirement age is currently 66 for people born between 1943 and 1954; higher for those born later, up to 67 for those born in 1960 and after. If you start collecting Social Security before your full retirement age (say at age 62) and continue to work, you will be penalized by getting a reduction in your Social Security. You lose $1 in benefits for every $2 earned over $15,720 this year. (Multiple that number by 3 -- roughly $47,000 -- and you would lose all of your benefits. So would anyone collecting on your record such as a spouse or dependent minor child. Benefits lost to the earnings cap are restored once you reach full retirement age.

2. 66 is the magic age.

Franklin coined that one. Not only does the earnings cap disappear at full retirement age (currently 66), but that's when you can also engage in some creative claiming strategies. Consumers need to know only two phrases: "file and suspend" and "file a restricted claim for spousal benefits." You must be at least 66 to use either one.

3. File and suspend.

At 66, you can tell SSA you want to file and suspend. That means you are filing for your benefits but you are not collecting them yet. Your retirement benefits earn delayed retirement credits (DRCs) worth 8 percent per year for every year you postpone collecting them up to age 70. If your full retirement age is 66 and you wait until 70 to collect, you could boost your retirement benefits by 32% (8 percent x 4 years).

You also might want to file and suspend in order to trigger spousal benefits for your mate (who must be at least 62 years old or caring for a minor child under age 16). This could enable your spouse to delay starting their own benefits until they are 70, when they would get more.

4. File a restricted claim for spousal benefits.

Filing a restricted claim for spousal benefits at 66 (assuming your spousal has already claimed SS benefits) allows YOU to claim only your spousal benefits while your own benefit continues to earn delayed retirement credits up to age 70.

The combo strategy allows one spouse to file and suspend triggering benefits for the other spouse and the second spouse who is also at least 66 can restrict their claim to spousal benefits. Both can collect their own benefits at 70.

5. The Viagra College Fund.

You can also file and suspend to trigger dependent benefits for a minor child under age 18. The child is entitled to collect 1/2 of a parent's FRA amount. Franklin facetiously calls that the "Viagra college fund." She offers this example: Dad is entitled to $2,000 per month. He files and suspends and collects nothing for up to four years but junior collects $1,000 per month until he turns 18 (19 if still in high school).

6. You scratch my back, I scratch yours.

For power couples of similar ages, each with substantial Social Security benefits of their own, there's a combo strategy. At 66, one spouse can file and suspend to trigger a spousal benefit and the second spouse, who also must be at least 66, can restrict his/her claim to spousal benefits. Both can switch to their own larger benefits at 70.

7. Like fine wine, benefits improve with age.

It seriously matters when you start to collect benefits, said Franklin.

The difference between claiming reduced benefits at 62 (75 percent) and maximum benefits at 70 (132 percent) is a 76 percent increase in Social Security income for the rest of your life. Retirement benefits are permanently reduced for early claiming.

8. Talk to each other.

Married couples, including same-sex couples, should coordinate their claiming strategies, Franklin said.

In general, the spouse with the larger Social Security benefit should delay claiming up to age 70, creating not only the largest possible retirement benefit, but also the largest possible survivor benefit. In many cases, the lower-earning spouse may want to claim reduced benefits at 62, assuming he/she is not working in order to bring some income into the household to lessen the sting while the higher earner delays collecting until 70.

9. You're worth the same, dead or alive.

A survivor benefit is worth 100 percent of what the deceased worker was collecting or was entitled to collect at time of death -- assuming the surviving spouse who is collecting it is at least at full retirement age. Reduced survivor benefits are available as early as age 60 (71.5 percent).

10. There are reasons to love your ex.
Spouses who were married at least 10 years, are now divorced and are currently single, are eligible to collect benefits as if they were still married but basic Social Security rules apply. Collect as early as 62 and your benefits will be permanently reduced by 25 percent or more and you are subject to earnings restrictions. Wait until full retirement age and you can "restrict your claim to spousal benefits" collecting half of your ex-spouse's FRA amount and switch to your own larger benefit at 70. "Talk about the ultimate revenge!" said Franklin.

CORRECTION: An earlier version of this story incorrectly said survivor benefits were available at age 70.

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