Social Security is a major source of retirement income for millions of Americans, so it's important that people know how to make the most of their benefits. We asked three of our experts how people can maximize their Social Security benefits. Here's their advice.
The size of your ultimate Social Security benefits check is much more flexible than you think. Sure, the Social Security Administration assigns us all a "full" or retirement age based on when we were born, but you can choose to begin collecting benefits before or after your full retirement age, and this can change your benefits.
According to the SSA, the full retirement age for those born in 1960 or later is 67. (For those born in 1937 or earlier, it's 65, and for those born between 1937 and 1960, it's somewhere in between.) You can start collecting benefits as early as age 62 and as late as age 70; your benefits will be smaller if you start early and bigger if you start late. They grow by about 8% per year from your full retirement age until age 70. That means someone who delays receiving benefits from age 67 to age 70 can expect their checks to be about 24% larger -- a meaningful difference.
The difference isn't quite as big as it looks, though, because someone starting at age 67 will get 36 more checks than someone starting at 70. The SSA says the amount received is close to a wash, no matter when the checks begin arriving. Still, make your when-to-start decision carefully. If there's longevity in your family and you expect to live into your 90s, you may be able to hold out for bigger benefits and then enjoy those fatter checks more than long enough to make them well worth the wait. On the other hand, when you leave the workforce, you may find you need the extra income, in which case you'll have to start on time or earlier.
For context, the average monthly benefit for retirees in January 2015 is $1,328 per month, or $15,936 per year. You can visit the Social Security Administration's "my Social Security" page to look up your estimated benefits.
As Selena pointed out, waiting until later than full retirement age to take Social Security benefits can result in much larger monthly benefits. But many retirees need to start drawing at least some money from Social Security in order to get by. For them, a strategy known as "file and suspend" can be helpful.
Under this strategy, you file for Social Security at full retirement age but then turn right around and suspend those benefits. That accomplishes two things:
- It makes you eligible to receive the same delayed-retirement credits that raise your eventual benefits 8% for each year you wait.
- It allows your spouse to claim spousal benefits based on your work history. Depending on your spouse's age, those spousal benefits can be up to half of your benefit amount.
The net result is that your family can bring in some Social Security income relatively early in retirement while allowing your own benefits to grow as large as they can. And when you consider the additional money your spouse could receive as survivor benefits after your death because you delayed your own benefits, the advantage of the file-and-suspend strategy becomes even clearer.
The best way to maximize your Social Security benefits is to educate yourself on the program and its various rules. Everyone's situation is different in terms of income history, marital status, marital history, health, age, etc. Many factors must be considered as you determine the best way to maximize your Social Security benefits. The only way to figure it out is to educate yourself and formulate your own plan.
- As Selena said, if there's longevity in your family and you expect to live into your 90s, delaying Social Security as possible makes sense.
- If you don't expect to make it to your mid-80s, taking Social Security early makes a lot of sense if you want to maximize your benefits.
- Taking Social Security early while you're still working is generally not a good idea, as your benefits can be reduced by $1 for every $2 you earn above the annual income limit. That said, claiming early while working still can make sense in some cases.
- If you're married, spousal benefits open up a plethora of options that you can take advantage of. However, these options will require coordination between you and your spouse.
- If you were married for more than 10 years and then divorced, you're also eligible for spousal benefits, but these come with certain caveats that are important to know.
- If the Social Security Administration's website does not have an accurate record of your earnings history, you could miss out on Social Security benefits that you're entitled to.
If you haven't claimed yet, educate yourself, determine your strategy, and stick with your plan.