For my international readers, you may not be eligible for Social Security from the US, but you may have a different system in your own country or a pension from your work. Please make sure you understand what you have coming so there won't be any nasty surprises later.
If you are the main bread-winner of the family, it's probably pretty plain and simple. You've paid into the system all your working life, and when you retire, you will collect according to your earnings over the years and your age when you decide to retire. Most of what I will write about here is going to mean more to women who may not have had a career of their own, but it also goes for the guys whose wives earned more than they did.
When to Retire???You can begin collecting Social Security benefits at 62 but you will get a lesser monthly amount than if you wait until your full retirement age. But did you know that if you agree to accept the lower monthly payments because you want to retire early, you can later pay it all back so that you can re-retire at an older age and collect more monthly income? Of course, that wouldn't make a lot of sense unless you unexpectedly came into some money that allowed it to happen.
Most people seem to collect as soon as they can. No one knows how long they will live, so they might as well start early and collect it as long as possible. But that is not always the best way to go about it. If you wait until your reach 70, you won't get to collect as many payments, but each that you do collect will be larger. It turns out that if you die early, you will be ahead by starting early. But, if you live to about 77 or 78, you will be ahead if you waited to collect the higher amount. And you will continue to collect the higher payment for as long as you live.
Life ExpectancyThe Social Security people have this all figured out. Once we have reached the ripe old age of 65, a man has a life expectancy of 83 and a woman has a good chance of making it to 85. Those ages might be the averages, but one of every four 65-year-olds will live past 90, and one in every ten will make it past 95.
Combining Work and Social SecurityI always thought that if you work while collecting Social Security, they will deduct $1 for every $2 that you earn. That's true as far as it goes, but there's more to it. That 1-for-2 deduction only happens if you earn more than the annual limit, which is $14,640 in 2012. But once you reach full retirement age (depending on when you were born)--for me it's 66--there is no longer a limit on what you can earn, so there will be no deduction of benefits for working.
Divorced SpousesI spent most of my life as one of those unpaid workers whose job it is to stay at home and take care of the cooking, cleaning, laundry, shopping, child care, husband, etc., like many women in my age bracket. I didn't work outside the home enough to be eligible to collect Social Security in my own name. Because my husband and I were married for more than ten years and I never remarried, I will collect based on his earnings. The catch is that I only get a percentage of what he gets. If I start collecting at 62, I get only 35% of his monthly benefit; at 66, I will receive 50% of what he gets. The tricky part here for retirement planning is finding out how much the spouse you're divorced from will earn so you can figure out how much you will earn. Important note: the fact that I get this money does not affect either his own benefit or the benefits his current wife will get.
Surviving SpousesOnce one of the couple dies, the survivor may be entitled to benefits based on what the deceased partner earned. Fortunately for them, the percentage is higher--possibly 75 to 100% of what the worker received. But this is one of those instances where the widow or widower has to be alert.
My friend's mother did work outside the home enough to earn a retirement benefit of her own. It wasn't as much as her husband earned, but the combined benefits let them live quite comfortably. When her husband died, my friend's mom thought she would be able to continue collecting her benefit and receive a surviving spouse benefit. It turns out that it doesn't work that way. Once her husband had died, they paid her the higher of the two benefits, which meant that she now receives her surviving spouse benefit but no longer receives a benefit based on her own earnings. She still has enough, but she was looking forward to a little fun money.