Chances are, even if you've been diligently planning and saving for your retirement, Social Security will still make up a meaningful chunk of your income in your golden years. It's important to understand how to make the most of it -- so read this before you take Social Security benefits.
Know how much to expect in Social Security benefits
As you plan for retirement, it helps to have a rough estimate of how much Social Security income you'll receive. You can get that estimate by creating an account on the SSA's website.
For context, the average monthly retirement benefit was recently $1,347, which totals $16,164 per year. If your earnings have been above average, though, you'll collect more than that -- up to the maximum monthly Social Security benefit for those retiring at their full retirement age, which was recently $2,639. (That's about $32,000 for the whole year.)
Know when to take Social Security benefits
Don't assume that 65 is when you're supposed to start getting Social Security checks. The normal (or "full") retirement age has been increased for many of us. For those born in 1937 or earlier, it's 65, and for those born in 1960 or later, it's 67. For those born between 1937 and 1960, it's somewhere in between. However, you can start receiving benefits as early as age 62 and as late as age 70.
For every year beyond your full retirement age that you delay starting to receive benefits, you'll increase their value by about 8% -- until age 70. So delaying from age 67 to 70 can leave you with checks about 24% fatter. Retire early, and your benefits may be up to about 30% smaller. Note, however, that the system is designed so that your total lifetime benefits will be about the same no matter when you claim, assuming you live to your average expected life span. For instance, if you claim early at age 62, then your checks will be considerably smaller, but you'll receive more of them, potentially receiving the same total amount you would have received by delaying benefits.
Know how to increase your Social Security benefits
Delaying Social Security benefits is a great way to make the checks bigger, but there are other strategies, too.
The formula that the Social Security Administration uses to compute your benefits is based on your earnings in the 35 years in which you earned the most. If you only earned income in 26 years, then the formula will incorporate nine zeros, which will shrink your average benefits considerably. Are you planning to retire after 32 years of work? It might be worth it to work three more years if you want to get more benefits. Even if you've worked 35 years, if you're now earning much more than you have in the past (on an inflation-adjusted basis), then you might consider working for another year or two, as each high-earning year will kick a low-earning year out of the calculation.
Know about spousal strategies
Married couples have more options when it comes to collecting Social Security benefits than single individuals do. They might claim one partner's benefits early, on time, or late, and do something else with the benefits of the other partner. Spouses can collect "spousal benefits" based on the other's earnings history, too, getting up to 50% of that spouse's benefits. (Widows and widowers can choose to start receiving 100% of their late spouse's benefit instead of their own, too.)
One good strategy for many married folks is to start collecting the benefits of the spouse with the lower lifetime earnings on time or early, while delaying the benefits of the higher-earning spouse. That way, the couple does get some income earlier, and when the higher earner hits 70, they can collect extra-large checks. Also, should that higher-earning spouse die first, the spouse with the smaller earnings history can collect those bigger benefit checks.
Note, too, that even divorcees can collect benefits based on their ex's earnings history -- if they were married for at least 10 years and have not remarried.
You may be able to collect a lot more in total retirement income if you learn about when to start collecting, how to maximize your benefits, and how to coordinate with your spouse before you take Social Security benefits