How much will I get from Social Security?
When can I get it?
When should I get it?
These are usually the first questions that come to mind as you approach retirement.
As a source of guaranteed income, Social Security is a vital part of any retirement plan—that much is clear. Unfortunately, claiming Social Security isn’t as simple as choosing whether to claim ASAP, at full retirement age, or as late as possible. There are far more factors involved in crafting a smart Social Security strategy.
Fortunately, if you follow a few specific steps, you can position yourself to maximize your monthly Social Security benefit.
1. Estimate your life expectancy
Let’s start by eating the frog: The first order of business is to get a reliable picture of your life expectancy.
Talk to your health care providers about your family history and current health status to figure out how long you can expect to live. Also, keep in mind that most retirees underestimate their life expectancies.
While it can be an uncomfortable discussion, it’s essential to plan for longevity. If you have a serious or chronic health condition, it might make sense to claim earlier. On the other hand, if your family tends to live into their 90s, there’s a case to be made for delaying benefits.
2. Understand the range of benefits available
Add some context to your retirement earnings by doing an income gap analysis.
All you need to do is analyze how much your income would be each month if you drew on Social Security at each age, using the estimated benefits provided by Social Security.
3. Work at least 35 years
The federal government bases your Social Security benefit on your highest-earning 35 years of work history. You need at least 10 years of work history to receive Social Security benefits, except in the case of a non-working spouse of a worker with that type of employment history.
If you’ve worked for longer than 35 years, your lowest-earning years are dropped from the calculation, thus increasing your overall benefit. However, if you’ve taken a few years off work to take care of loved ones or other reasons, your benefit will take a hit from your zero-income years. That’s one compelling reason to maximize your current earnings.
4. Maximize your current earnings
As mentioned in the previous strategy, the more you earn and pay into Social Security, the higher your retirement payments will be. That means that increasing your earnings (up to the taxable maximum of $137,700 in 2020) is one of the best ways to maximize your ultimate benefit.
As long as you have 35 years of work history, any higher-earning years later in life will replace the lower-earning years. Even a low-earning year is better than having a zero averaged in.
If you now earn more than you did earlier in your career, then working an extra year—even after you retire—could increase your future payments. You can open a part-time consultant practice or offer your expertise as a board member of an organization.
5. Coordinate spousal benefits
If you’re married, you’ll have many more options to review when deciding your Social Security strategy.
Assuming you have not yet claimed your benefits: If you were born on or before Jan. 1, 1954, once you reach full retirement age, you have the option to file a “restricted application.” This allows you to claim a spousal benefit worth up to 50 percent of your spouse’s benefit, if that amount is higher than your own payment.
Your own benefit will continue to grow, and when you turn 70, you can switch to your own higher benefit amount. However, those born after Jan. 1, 1954 won’t have access to this option.
If you were married for at least 10 years, you’re eligible for spousal payments. Your payments won’t affect your ex-spouse’s payments. They'll collect the benefit they're entitled to, regardless of whether you claim an ex-spousal benefit, and their new spouse’s benefits will not be affected by your divorced-spouse benefit.
And finally, if you and your spouse have a large age gap, your Social Security strategy will look a little different from that of similarly-aged couples. Remember to account for any and all of your unique circumstances, including differences in life expectancy, benefit, and retirement timelines.
6. Integrate Social Security into your retirement income plan
Once you leave the workforce, the years that follow can be all that you want them to be—if you pave the way with a retirement income plan.
Your retirement income plan will help you avoid taking out too much from your retirement accounts.
The income gap analysis you completed in Strategy #2 comes handy here. Use it to compare your estimated Social Security benefits at various ages and your overall spending needs. The difference between your benefit and spending needs is the true income amount you’ll need from other retirement accounts.
7. Don’t claim before your Social Security full retirement age.
While there isn’t a universal “correct” claiming age, there is a rule of thumb: If you can afford to wait, delaying Social Security can pay off over a long retirement.
You may be eligible to collect Social Security as early as 62, but you’ll get a higher benefit if you wait until full retirement age (FRA), or even until age 70. FRA is 66 for most Baby Boomers, and 67 for everyone born in 1960 or later.
If you start taking benefits at age 62, your benefits would be permanently reduced by 25 percent. Conversely, if you wait to take your benefits until after FRA, Social Security will add an 8 percent delayed retirement credit to your final monthly payout each year that you hold off, up until age 70. That’s more than the cost of living adjustments that Social Security has given out for the past decade, which have averaged about 1.5 percent per year!
View your annual Social Security statement to review your individual situation. Your statement will list your projected benefits at age 62, full retirement age, and age 70, assuming that you continue working and earning about the same amount until age 62, full retirement age, or age 70 before retiring.
8. Consider delaying Social Security until age 70.
If you can afford it, hold off on claiming Social Security until age 70 to max out your delayed retirement credit. Pensions used to be the standard retirement plans, but employers have shifted away from the defined-benefit plan in recent years. Given that, it makes sense to maximize your Social Security income stream.
And if earning a higher benefit isn’t enough incentive, consider the longevity angle: the Centers for Disease Control and Prevention (CDC) estimates that if you make it to age 65, you can expect to live another 19 years. If your Social Security benefit at 70 is over 75 percent higher than your benefit at 62, you’ll have more money to take care of your needs as you age.
9. Suspend your Social Security payments.
If you rushed to file for Social Security benefits early, it’s not too late to reverse your decision! If you’ve reached FRA but aren’t yet age 70, contact Social Security to suspend your payments.
If you suspend your benefits, you’ll earn delayed retirement credits for each month your benefits are suspended. You can grow your benefit by 8 percent per year of suspension up until age 70, or as much as 32 percent if you suspend your payments for four years.
10. Pay back your Social Security benefit.
On a related note, if you change your mind within a year of claiming your benefits, you have the chance to completely withdraw your Social Security application. The only catch? You’re required to repay all the money you’ve received.
You’ll be able to apply for Social Security payments again at a later date, and your benefits will reflect any delayed retirement credits which you’ve accrued. Bear in mind that you can only use this option once.
11. Maximize Social Security survivor benefits.
When one spouse in a retired married couple passes away, the surviving spouse can inherit the deceased spouse’s Social Security payment if that amount is higher than their current benefit. To increase your survivor benefit, plan for the higher earner to delay claiming Social Security as late as possible. The widow or widower may claim a one-time death payment of $255 if they were living together or receiving Social Security benefits on the deceased’s record.
If you’re divorced after having been married for at least 10 years, your former spouse can get death benefits. Benefits paid to the surviving divorced spouse won't affect the benefit rates for other survivors getting benefits on the worker’s record.
If you provided at least half of the support for your parents, they can also get benefits after age 62.
12. Claim Social Security survivor benefits for children.
Your unmarried child can receive benefits if they are:
- Under age 18;
- 18 or 19 and a high school student; or
- Became disabled before age 22.
A widow or widower who is caring for a dependent child under age 16 or a disabled child who developed a disability before age 22 may also qualify for payments. However, Social Security won’t pay more than 150% to 180% of the worker’s benefit. If all qualifying family members exceed this limit, each person’s benefit is reduced.
Under certain circumstances, Social Security will also pay benefits to your step-children, grandchildren, step-grandchildren, or adopted children.
We Can Help
With just a little planning, you can make the most of your Social Security benefits.
If you need help developing a comprehensive retirement income strategy, we can help. Please fill out the form below for a complimentary retirement consultation. We look forward to speaking with you!
DISCLAIMER: Advisory Services offered through Prosperity Financial Group, Inc., an Independent Registered Investment Advisor. Securities offered through Fortune Financial Services, Inc. Member FINRA/SIPC. Prosperity Financial Group, Inc. and Fortune Financial Services, Inc. are separate entities.