The Most Misunderstood Part of Social Security

Millions of people rely on Social Security to make ends meet in retirement. For many of them, getting as much as possible from Social Security is an essential part of their financial planning, and so it's natural to try to take maximum advantage of as many different benefits as you can.

However, a lot of people get confused when it comes to coordinating different Social Security benefits. Often, what your common sense says ought to be the answer turns out to be incorrect -- and if you make plans based on those incorrect assumptions, it could hurt you at a time when you can least afford it.

Different benefits you can receive

Most people think of Social Security as paying workers who've retired, and that's by far the most common benefit that the federal government pays. According to the most recent statistics available, out of 63 million Americans collecting Social Security, 44 million are retired workers.

But there are many other types of benefits that you can receive from Social Security. They include the following:

• Spousal benefits paid to spouses of workers. About 2.4 million people receive these benefits.
• Survivor benefits to spouses, children, and other family members of deceased workers. Almost 6 million people get these types of benefits.
• Disability benefits for workers and their families. More than 10 million people receive benefits either as disabled workers or as spouses or children of disabled workers.

Typical benefit amounts vary by the type of benefit in question. The average retired worker's benefit is about $1,465 per month, while the typical spousal benefit amounted to $765 per month. Survivor benefits average almost $1,200 per month, and disability benefits pay about $1,100 monthly on average.

Why you can't double-dip with Social Security

The natural assumption that many people make is that if they're entitled to two different Social Security benefits, they'll be able to keep both of them. That's not just wishful thinking; it actually has some basis in how the program works.

To understand why double-dipping could theoretically make sense, consider a married couple in which both spouses worked and are retired. Both can receive Social Security benefits on their own work records, and so they'll receive two payments from the federal government each month.

When one spouse dies, the other becomes eligible for survivor benefits, which are based on the amount that the deceased spouse was receiving in retirement benefits. Plenty of people mistakenly believe that the surviving spouse should continue to receive two separate payments from Social Security, one for the retirement benefits on the survivor's own work history, and one for the survivor benefit on the deceased spouse's work record.

However, that isn't the way it works. In fact, in just about every situation, you're not allowed to double-dip on Social Security. Instead, you'll be allowed to receive whichever amount is larger, rather than simply adding the two together. That includes the following:

• Claiming a retirement benefit and a survivor benefit at the same time.
• Simultaneously claiming retirement and spousal benefits.
• Claiming disability and survivor benefits together.
• Claiming divorced spousal or survivor benefits based on more than one former spouse's work record.

Expect the right benefit

Some people think that not being able to double-dip with Social Security is unfair, because it essentially makes some of the additional benefits that the program provides meaningless. Yet it's important to remember that Social Security was intended primarily to be a social insurance program, and so ensuring a basic minimum income for as many people as possible is more important in determining its rules than maximizing benefits.

Understanding how multiple Social Security benefits coordinate can be counterintuitive, but it's critical in determining how much you should expect from the program. If you don't, it could lead you to make unrealistic projections of what Social Security will pay you -- potentially causing you not to save enough in additional retirement savings to cover the difference.

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