SOCIAL SECURITY: BEING STRATEGIC WITH YOUR RETIREMENT RESOURCES
For many of my clients, Social Security benefits play a substantial role in their retirement plan. But leveraging these benefits isn’t as simple as turning 62 and receiving a check—there are lots of factors that affect how much Social Security you receive, so it’s important to consider your specific needs and determine how you can maximize this resource—you earned it, after all!
To start, here are some basics you need to know about Social Security:
The amount you receive is determined by your earning history and how many quarters you contributed to Social Security. I recommend visiting SSA.gov and creating an account; this will allow you to view your benefits and statements.
Your full retirement age (FRA) is the age you can claim your benefits without a penalty, whether you’re working or not. If you were born in 1960 or later, full retirement age is 67.
Once you reach FRA, your Social Security benefit grows by 8% each year. It stops earning that 8% when you begin claiming it. That means if your benefit is $2,000 at age 67, by age 68, it would be $2,160; by 69, it would be $2,332; and by 70, it would be $2,519. It stops earning 8% once you’re 70 and increases from there based on the annual Cost of Living Adjustment (COLA).
With these facts in mind, here are some questions to ask yourself to help you maximize your Social Security benefits:
When is the best time to claim my social security benefits?
The earliest a person can withdraw Social Security is age 62, but if you haven’t reached full retirement age (which varies depending on the year you were born) or earn above the annual earning limit (currently $23,400), you’re penalized and won’t receive your full benefit. In fact, if you’re working, you lose $1 of your Social Security benefit for every $2 you make above the earning limit.
Add this to the fact that your benefit grows by 8% every year after FRA (a guarantee you won’t get with any other kind of investment), and it makes sense to delay claiming as long as possible and avoid any penalties.
Something else to consider is your anticipated longevity—an additional 8% could make a big difference if you live to be 90 rather than, say, 75.
On the flip side, once you reach 70, you should start claiming your money—there are no penalties at that point, and the amount won’t change, so any unclaimed benefits are just lost money.
Should my spouse and i claim Social security at the same time?
Like almost every question in financial planning, the answer depends on your specific situation. You certainly can claim both benefits simultaneously, and all the rules mentioned above still apply to the individual benefits.
But if it’s likely one of you will outlive the other (which is almost always the case), and you decide you need the income before you both turn 70, it’s best for the spouse with the higher benefit to delay claiming until age 70, and to claim the lower benefit first. Because when one spouse passes away, the surviving spouse has the opportunity to keep the higher check and forgo the lower one. At that point, with one income stream, the surviving spouse will want to take advantage of the maximum possible benefit.
What if I don’t work outside the home?
If you don’t have an extensive work history and your own Social Security benefit is less than 50% of your spouse’s, you can claim 50% of their benefit once you both reach FRA. If you claim it sooner, the amount is reduced, just like your own benefit would be if you claimed it early.
What if my spouse dies before reaching social security age?
If your spouse passes away before claiming Social Security, you can claim his or her full benefits when you reach full retirement age. (You can claim them as early as 60 as long as you’re below the annual earning limit, but the benefits are reduced.)
So, if your FRA is 65, and your spouse passed away when both of you were in your 50s, that would allow you to claim their full benefits for five years while your own continue to grow; then you could claim yours at 70—which is beneficial if yours is the higher benefit. Of course, if yours is the lower benefit, you can opt to receive theirs indefinitely.
What if I’m divorced?
If you were married to your ex-spouse more than 10 years, you can claim 50% of their benefits, and it doesn’t affect what they or their current spouse receives. You both must be at least 62 for you to claim their benefits, and if your ex-spouse has yet to file for benefits, you’ll have to wait until the divorce has been finalized for at least two years. If your benefits are higher, you’ll just receive your own, and if you remarry, you can no longer claim their benefits.
But what about—?
As you can see, there are a lot of nuances with Social Security benefits, and it would be nearly impossible to cover every scenario in a blog. But that’s what I’m here for. I work with a lot of pre-retirees and retirees and help them determine the best strategies for their specific situation.
So if you have questions or you’d like to review your retirement plan to ensure you get the most from your Social Security benefits, I’d be happy to talk with you.
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