Seniors are expected to have a lot on their plates when they retire. Once they move on from their careers, they'll have to lean on their retirement savings and a number of social programs to make ends meet. One of these programs, Social Security, projects as a major player for the financial well-being of our nation's elderly.
According to two separate Gallup surveys conducted in April 2018, the percentage of existing retirees leaning on Social Security in some capacity to make ends meet (90%) was tied for a 16-year high. Meanwhile, the 84% of nonretirees who expect to be at least somewhat reliant on Social Security income during their golden years was tied for a 15-year high. Social Security's importance isn't waning, which means you'll want to get as much out of the program as you can.
How, exactly, do you do that? Here's are five ways to make sure you get what you deserve.
1. Focus on lifetime benefits, not monthly payouts
The absolute best suggestion I can offer to prospective retirees is to approach your Social Security claiming decision with the mindset of maximizing what you'll collect over your expected lifetime, rather than focusing on how much you'll ultimately be bringing home each month.
The gist is simple. The Social Security Administration (SSA) allows eligible beneficiaries to begin collecting their benefit as early as age 62, or at any point thereafter. There is, however, a dangling carrot designed to encourage seniors to wait -- that being an approximate 8% increase in your monthly benefit for each year you hold off on taking your payout, up until age 70. Depending on your birth year, your monthly payout at age 70 could be as much as 76% higher than what it would have been had you taken your benefit at age 62.
It all sounds fine and dandy on paper, but there are personal considerations that need to be examined by everyone. For instance, if you have a chronic health condition that could adversely impact your life expectancy, waiting to take your benefit just so you can make a few dollars more each month is going to wind up costing you money over your lifetime. In essence, taking permanently reduced benefits at age 62, rather than waiting to receive your first larger benefit at age 70, would make a lot of sense if you don't expect to live past, say, age 77. Those extra eight years of payouts would result in a higher lifetime benefit from the program than seven years of higher monthly payouts.
Factors such as your health, marital status (which I'll discuss in the next point), and financial health (e.g., retirement savings) should all play a role in your claiming decision. There simply isn't a one-size-fits-all claiming strategy.
2. Consider applying for benefits as a family decision, rather than a personal one
Secondly, even though your Social Security claiming decision is a highly personal one -- after all, it's based on your work and earnings history -- consider it more of a family affair.
If you're single and have no young children, then by all means just focus on the health and financial parameters that matter to you. But if you have a spouse and/or young children, your claiming decision can impact far more than just your own monthly benefit.
For example, when you begin drawing a payout from the program may determine whether or not your spouse can maximize their survivor benefit, should you pass away first. Claiming benefits prior to reaching your own full retirement age will ensure your spouse receives a reduced survivor benefit. That could be a problem if you were the household breadwinner and you pass away first.
3. Understand your options
The third piece of the puzzle, which builds on the point above, is to consider and understand all of the claiming options that may be available to you or your family beyond just a retired-worker benefit.
Most of us will earn our way into a Social Security payout when we retire as the result of our work and earnings history. But understand that there could be other means to an even higher monthly payout than what we'd be due based on our work history.
As an example, if a higher-income spouse were to pass away, the lower-income spouse may be able to receive a higher monthly payout via survivor benefits. This is the case if the survivor benefits would pay more monthly than the surviving spouse would receive based on their own work history.
Additionally, persons married for at least 10 years who subsequently divorce may be able to pull benefits based on the work and earnings history of their former spouse -- even if that former spouse gets remarried. As long as an individual is of claiming age (at least 62), unmarried, and the ex-spouse is entitled to benefits, the divorced spouse can reap the rewards (as long as the benefit from the ex-spouse is higher than they would have received based on their own work history).
Understanding all of the options available to you can go a long way to boosting your lifetime benefits from the program.
4. Take into account the tax implications
Next, you'll want to give serious consideration to the tax implications of receiving Social Security benefits, because whether you realize it or not, those benefits you receive may be taxed at the federal and/or state level.
Beginning in 1984, the federal government began taxing up to 50% of Social Security benefits for individuals whose modified adjusted gross income (MAGI), plus one half of benefits, exceeded $25,000, or $32,000 for couples filing jointly. Then, a decade later, up to 85% of benefits became taxable if an individual or couple exceeded $34,000 or $44,000, respectively, using the same MAGI-plus-one-half-of-benefits formula. Today, roughly half of all senior households owe federal tax on their Social Security benefits.
In addition to federal taxation, 13 states tax Social Security to some degree. In alphabetical order, these states are: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia. Some states, like Missouri, Rhode Island, Kansas, and Connecticut, have relatively high income exemptions, meaning few beneficiaries pay tax on their payouts. Others, like Vermont and West Virginia, mirror the federal schedule, thereby equating to double taxation for quite a few seniors in these states.
Understanding your tax implications can potentially save you money.
5. When in doubt, consider a do-over
Last, but not least, when in doubt, consider Social Security's under-the-radar mulligan: Form SSA-521. Officially known as the "Request for Withdrawal of Application" by the Social Security Administration, Form SSA-521 allows an individual who meets certain criteria to undo their claim. As long as the SSA approves the claim, it'll be as if benefits were never paid, and your payout will once again return to growing by 8% with each year, up until age 70.
Those "certain criteria" are as follow: First, you only have 12 months from first receiving benefits to file for this mulligan, so you'll have to decide pretty quickly if you regret your claiming decision. And secondly, you'll need to repay every cent you received from the Social Security program before your claim is undone.
This mulligan can be particularly handy for baby boomers who were forced into an early claim due to unemployment, but who land a well-paying job within 12 months of first receiving benefits. Undoing their claim (assuming SSA approval) would then allow their payout to continue growing, all while using their work wages to make ends meets.
That, folks, is a road map to getting the most out of Social Security.