Social Security income is going to be rather important to most of us in retirement, so it's worth spending a little time learning how we might make the most of the program, and make our monthly benefit checks as big as they can be. Here are three ways to do so.
Get in all 35 years
Brian Stoffel: The formula that the Social Security Administration (SSA) uses to determine your monthly benefits is based on your 35 highest-earning (and inflation-adjusted) years. If you don't have at least 35 years with earnings, then zeros will be inserted for however many years you're short.
That can make a big difference. Consider someone who earned an average of $50,000 per year while working, but only has 28 years with earnings on record. Because the SSA will include seven years of $0 earnings, the "average" earnings will drop all the way down to $40,000 per year.
Obviously, if you're about to retire, it might be too late for you to take action on this. But if you can do so, consider delaying retiring by another year or more, or even getting a part-time job for a while can help boost your average earnings -- and provide a bigger benefit check come retirement time.
Find the age that's likely to pay you the most money
Jason Hall: Social Security is structured so that retirees have a lot of flexibility as to when they can begin receiving benefits, starting as early as age 62, or as late as age 70. The key difference is that, the longer you wait, the bigger your monthly benefit will be, while the sooner you file, the more total checks you'll receive.
For most people, this means, on average, that you'll collect about the same total amount of money. Still, there are circumstances where you may be able to hedge your bets and increase your odds of receiving more total money by filing at a specific age. Here's a table that shows (in green) where your filing age and age of death would correspond to the most total dollars paid:
What does this tell us? Three things:
- If you're unlikely to live past your mid-70s -- for instance, if you have a health condition that's likely to shorten your life span -- claiming at age 62 will almost certainly be in your best interest. Not only would starting Social Security earlier lead to the most total dollars for anyone who doesn't live past 76, but it would give you potentially more years in retirement, or at least working less.
- On the other end of the spectrum, if you're more likely to have a long life based on your health and/or family history, it's in your best financial interest to delay claiming Social Security as long as possible.
- For the rest of us, the numbers indicate that you'll probably live into your early 80s if you reach 65. So if that's your situation, taking Social Security around age 67 or 68 is a good hedge against leaving money on the table by claiming too early, while also starting your retirement early enough to enjoy more active years.
Make the most of your spouse
Selena Maranjian: Married couples have more options when it comes to collecting Social Security benefits than single people do. For example, spouses can collect "spousal benefits" based on their life partner's earnings history -- getting up to 50% of that spouse's benefits -- instead of collecting benefits based on their own work history. That might not seem like a great deal, but it can be meaningful if one spouse has earned far less than the other and is therefore entitled to smaller benefits on his or her own work record.
Couples can employ other strategies, too, such as starting to collect the benefits of the spouse with the lower lifetime earnings record on time or early, while delaying starting to collect the benefits of the higher-earning spouse. That way, the couple gets 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 -- as widows and widowers can choose to receive 100% of their late spouse's benefit instead of their own. The survivor benefit is not available to those who remarry before age 60, but it is if you're at least 60 and were married for at least 10 years.
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. So if you're thinking of divorcing after, say, nine years of marriage, you might want to consider staying married until 10 years have passed -- if you can.
If your spouse is disabled (to the degree that the condition is expected to last at least a year or result in death), you may be able to collect up to 50% of his or her benefit. You need to be at least 62, or be taking care of a qualifying child and have been married for at least a year in order to qualify for spousal disability benefits.
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