Social Security is not as simple as many people think it is. There are several choices you can make that will determine how much your monthly benefit is, such as the age you decide to begin collecting your benefits and the particular situation of your family.
And while there is no magic formula that will guarantee that you'll maximize the benefits available to you, there are some strategies you can use to make smart Social Security decisions for you and your spouse. We asked three of our experts how to maximize Social Security benefits, and here is what they had to say.
One popular way to boost Social Security benefits simply is to delay starting to receive them. The Social Security Administration assigns each of us a "full" or "normal" retirement age based on our birth year. If you were born in 1937 or earlier, your full retirement age is 65. But for those born in 1960 and later, the full retirement age is 67. You can choose to start collecting your checks as early as age 62, though, or as late as age 70. If you start earlier, your checks will be considerably smaller, while delaying starting will boost the ultimate size of your monthly checks -- by about 8% for each year between your full retirement age and age 70.
The situation isn't as black and white as it seems, though, because whether you start collecting benefits on time, early, or late, the Social Security Administration has pointed out that your total take will amount to roughly the same thing. Even though you'll get much bigger checks by waiting, you'll also lose out on years of collecting checks while you wait.
Of course, many people don't have the luxury of waiting. Perhaps because of an unexpected job loss, or simply because their savings aren't sufficient, they need that Social Security income as soon as possible. If you do have a choice, though, and can delay starting to collect, there are some situations in which it does make sense. For example, if you're in good health and have ancestors who lived to ripe old ages, you might reasonably expect to live a long time. In that case, having bigger checks for more years can be particularly welcome and can make delaying the smart choice. Also, if your savings generate enough income to live off of while you delay your Social Security checks, the strategy can work for you. This way to boost your Social Security benefits won't work for everyone, but it might be right for you.
Selena's recommendation about delaying your retirement benefits is a simple way to boost your monthly payments, but in family situations, there are some more complex strategies that can sometimes give you the best of both worlds. For instance, one strategy known as file and suspend involves a higher-earning spouse filing for Social Security at age 66 but immediately suspending payments. This allows the lower-earning spouse to claim spousal benefits, starting a flow of family Social Security income, but also lets the higher-earning spouse earn delayed retirement credits that will result in larger payouts in the future.
Similarly, those who've reached retirement age can consider filing as a spouse first, electing to receive only spousal benefits even if they're eligible for benefits on their own work record. As with file and suspend, filing as a spouse first lets your own retirement benefits earn delayed retirement credits. When you add in the potential lifetime boost that a surviving spouse or other family member can get when a higher-earning spouse decides to put off Social Security in favor of larger future payments, the advantages of these strategies become even clearer. Not all family situations make these strategies the optimal way to handle your Social Security, but they raise issues that anyone collecting Social Security should consider in their financial planning.
If you are claiming Social Security spousal benefits and don't plan on switching to your own after a delay, as Dan mentions above, one way to maximize your benefits is to wait until your full retirement age to claim them. Unlike with your own Social Security benefits, there would be no boost to your spousal benefits for deferring to claim them past your full retirement age. Thus, if you wait to claim past your full retirement age then you could miss out on payments that you won't get back.
Social Security spousal benefits max out at 50% of your spouse's primary insurance amount. Similar to regular Social Security benefits, if you claim early, as Selena explains above, your benefits will be reduced. If you claim at age 62 under spousal benefits you will receive only 35% of your spouse's primary insurance amount, a 30% reduction compared to what you could receive by waiting four or five years, depending on your full retirement age.
While by claiming at 62 you would collect four more years' worth of checks, the check amounts would be smaller, so you'll have to do a breakeven analysis to compare the difference between claiming at 62 and claiming at 66. For example, let us assume that your spouse's primary insurance amount is $2,000. Note, however, that the breakeven date will remain the same for any amount.
Compared to claiming at 62, claiming at 66 makes sense if you expect to live past age 75. Based on the Social Security Administration's life table, for those who already have made it to age 62, 72.5% of males, and 81% of females, are expected to make it past age 75. Everyone has to make their own choices about when is the right time to claim, but the math is pretty clear that it is better to wait if you want to maximize these benefits over your lifetime.
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