Take No Social Security Payments Until...
Until You’ve Learned How to Maximize Them
One of the biggest mistakes people can make when planning for retirement is failing to maximize their Social Security benefits.
Why is this a mistake? After all, you may have heard that Social Security is broken, or that it won’t be around by the time you retire. But the truth is that Social Security is nothing less than a guaranteed stream of income, something no retiree should ever neglect. Even better? There are ways to maximize your Social Security benefits. In other words, you may have the ability to increase your post-retirement income. For these reasons, Social Security should and will play a large part in your retirement plan. Failing to give your Social Security benefits the attention they deserve is basically just a way of denying yourself money for retirement.
To help you avoid this mistake, here are …
THREE WAYS TO POTENTIALLY INCREASE YOUR SOCIAL SECURITY BENEFITS
1. Delay Collecting Your Benefits
Too many people rush to collect their Social Security benefits as soon as they retire. This is sometimes a mistake, especially if you retire early. Technically, you can begin receiving benefits as early as age 62, but if you do so, your benefits will be reduced significantly. For example, if you were born between 1943 and 1954, your payouts would be reduced by 25%. And the reduction isn’t temporary. It’s permanent.
Waiting until your “full retirement age” is probably a better option—it means you won’t face any reduction. What is your “full retirement age?” It’s the age at which a person may first become entitled to “full” or “unreduced” retirement benefits.1 The chart on the next page gives you the specifics:
1 “Retirement Planner: Benefits By Year of Birth,” Social Security Administration, accessed Monday, December 16th, 2013. http://www.socialsecurity.gov/retire2/agereduction.htm
|Year of Birth||Full Retirement Age|
|1955||66 and 2 months|
|1956||66 and 4 months|
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 months|
|1960 and later||67|
The latest you can begin collecting benefits is at age 70, and there’s good reason to hold off until then if you can afford it. Benefit payments go up 8% for every year you wait after you reach your full retirement age up to age 70. In other words, the longer you can keep your hand out of the cookie jar, the more sweets you’ll eventually receive.
2. Claim Spousal Benefits
This topic is very intricate—too intricate for a single letter. So for now, it’s more important that you simply be aware of your options. Another way to potentially maximize your Social Security is to claim a spousal benefit. Married individuals can claim Social Security based on either their personal earnings record (in other words, their own work history) or on their spouse’s earnings record. If a married individual chooses the latter, they would receive up to 50% of their spouse’s benefit.
Why would you choose to claim Social Security based on 50% of your spouse’s earnings record rather than your own? It’s simple: because you can claim whichever number is higher. Be aware, however, that you cannot claim a spousal benefit until your spouse has filed their own claim.
3. Claim Survivor Benefits
Imagine a hypothetical couple, John and Mary. Let’s say that both claimed Social Security based on their own earnings records. Now let’s say that John dies of a heart attack, leaving Mary behind. Under certain circumstances, Mary can file to receive John’s benefit, or increase her own benefit to the same amount that John enjoyed, if John’s number is greater.
There are other ways to potentially maximize your Social Security benefits, too. To learn about these, or more about the methods listed here, please feel free to give my office a call at 301-791-7910, or e-mail me at firstname.lastname@example.org. I’d be happy to speak with you about your options.
Whatever you do, remember: Social Security is a guaranteed stream of income, and should figure highly into your retirement plan. Don’t deny yourself the chance to earn more money for retirement!
Jeff Bowers, CFP®, CFBS