For all the issues and decisions surrounding Social Security benefits, this is probably the toughest: When should you begin collecting that monthly check?
Figuring out the answer to that all-important question is one of three strategies this article offers to squeeze the most out of your Social Security benefits. These options are connected, so it's crucial to understand all three.
1. At what age should I begin collecting Social Security benefits?
The later you wait to start taking benefits, the higher your monthly income will be. But if you start earlier, you'll collect a check for a longer period of time.
The right answer could be as early as 62, full retirement age (between 65 and 67, depending on your date of birth), as late as 70, or anywhere in between. What's a Fool to do?
Talking to the expert
For guidance, I traveled to AARP's headquarters in Washington, D.C., to talk with Jean Setzfand, vice president of financial security at the 37-million-member nonprofit. She advises thinking about your benefits in terms of the higher quality of life that will come with a larger monthly check.
With the stipulation that everyone's situation is different, the AARP's position is to hold out as long as you can in order to collect the largest monthly check possible. Of course, as Setzfand said, your circumstances might dictate tapping in sooner rather than later. But don't make an emotional decision to start taking the money just because you can.
By waiting until age 70, you're looking at roughly 75% more income per month compared to those who begin receiving benefits at age 62. For someone nearing the minimum retirement age now, and who averaged about $25,000 in annual income over the years, that's the difference between receiving $866 each month and $1,524.
What does the math say?
According to the Social Security Administration, if you live to your average life expectancy, you'll receive about the same amount in lifetime benefits no matter when you start receiving the money. In other words, a smaller paycheck over a longer period of time equals a larger paycheck over a shorter period of time.
The good news is you might live longer than you think. The bad news -- if you tapped in early and are getting a smaller monthly payment -- is you might live longer than you think. Unless you're in poor health, you might as well plan on living to a ripe old age and chasing kids off your lawn. Delay taking your benefits as long as you can, and you'll be drawing a bigger check even as you chase.
2. How couples can use the spousal benefit to maximum effect
Now that you know that delaying equals a bigger monthly check, here's a neat way for dual income-earning spouses to delay taking their own benefits, while one taps into the spousal benefit from a husband or wife.
If both of you have reached full retirement age, one can apply for benefits and then suspend them. The other then applies for spousal benefits only from that first account.
Thus, both have delayed their own benefits, while one is receiving the spousal benefits from the other's account. This may help both of you get to the maximum age of 70 before tapping into benefits.
3. Providing more for your spouse when you've departed
Guys, we all know the situation: the gals usually outlive us. We need to plan for this.
So let's think about a common situation among dual-income earning spouses, where the husband earns more than the wife. If the husband can delay taking benefits until age 70, this will provide the maximum monthly spousal benefit for the wife to enjoy the rest of her life. Incorporating tip No. 2 can help the couple delay taking benefits.
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