Social Security's retirement benefits program provides income to the vast majority of older Americans. While you may assume getting money from the Social Security Administration is a simple matter of filing for benefits, the reality is that this entitlement program is much more complicated than it seems.
There are many choices you'll need to make with regards to your benefits. Making the right ones can sometimes leave you with a lot more money over the course of your lifetime. To ensure you're maximizing your income, consider these three things before you claim any checks.
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1. Be smart about what benefits you get
When you think of Social Security, you probably think first of retirement benefits. But these aren't the only payments the Social Security Administration provides.
If you become disabled, you may be entitled to Social Security Disability Insurance (SSDI) benefits. So if you are forced to stop working in your early 60s because of a health issue, you may want to think about claiming SSDI instead of your retirement benefits. This would enable you to delay claiming retirement benefits until your full retirement age, and thus avoid having your checks reduced due to early filing penalties.
You could also be entitled to spousal or survivor benefits. These allow you to get paid based on your current or former spouse's work record. These are available if you're married or divorced after a marriage lasting at least a decade. They can sometimes be larger than the benefits you get on your own.
Finally, lower-income seniors could also potentially get Supplemental Security Income (SSI) along with their retirement check. This could provide some much-needed extra income.
So be sure you explore all the different kinds of benefits you could be eligible for so you can get as much money as possible from Social Security.
2. Optimize your Social Security claiming strategy
If you are claiming retirement benefits, you can start them anytime between age 62 and 70. Claiming early will reduce monthly payments, but you will get more checks over your lifetime since you're starting them sooner. A delayed claim, on the other hand, means missing payments but your checks are larger later to compensate.
For some people, an early claim is best because they don't expect to live long (and don't need to worry about providing survivor benefits to a spouse after they pass). People in poor health may pass away before they start getting checks if they wait too long to claim benefits. Or they may end up with just a few payments. In this case, they'd miss out on money they could've had by claiming earlier and they won't make up for those forgone payments with larger future benefits.
For others, a delayed claim is better. This could be the case for anyone who outlives their projected life expectancy. They could end up living so long that the big checks they get due to a delayed benefits claim more than make up for income forgone earlier. Those who have a lower-earning spouse relying on them could also be better off with a delayed claim, as raising their payment will increase survivor benefits, too.
Ultimately, it's important to recognize that the right age to claim Social Security benefits differs based on your unique situation, so making a personalized plan for when to file is the best move.
3. Understand how the Social Security benefits formula works
Finally, it's important to make sure you understand the Social Security benefits formula so you can work the system to get the most benefits.
Social Security calculates your average wage in the 35 years you earned the most (after adjusting all of your annual earnings to account for wage growth). Benefits then equal a percentage of average wages. As mentioned above, though, the amount you're entitled to shrinks if you start checks early and goes up if you're a late filer.
By understanding this formula, you can avoid mistakes such as working less than 35 years, which would shrink your benefit. This knowledge also helps you optimize your claiming strategy so you can get every dollar you deserve of this earned benefit.
