Social Security Success
What will you do the morning after you retire? Aside from hitting the snooze button, many retirees immediately try to claim their Social Security benefits. However, before you do this, you may want to consider some basic strategies to help maximize your benefits.
Understand the Rules
Many people believe their total lifetime benefits – for those with an average life expectancy – will be the same regardless if they take a smaller benefit at age 62 or a larger benefit at age 70. However, both singles and married couples may benefit by waiting to take their benefit.
You can collect your full retirement benefit at your Social Security full retirement age, which ranges between ages 65 and 67, depending on your birth date. Benefits can be started at age 62; however, your benefit will be permanently reduced by a fraction of a percent for every month your starting age falls below your full retirement age. Also, for each month you wait to claim your benefits after your full retirement age, your benefit will increase by .66 percent or 8 percent annually.
If you delay receiving your benefits until age 70, your benefit could increase substantially over what you would have received at your full retirement age. It will also increase the survivor benefit for your spouse.
Think About Holding Off
If you’re single, waiting until you’re older can be beneficial if you live long enough to make up for benefits you did not receive while waiting to claim your benefits. Of course, you will need to have enough financial resources to support your needs while waiting to claim the benefits.
If you’re married, the strategy becomes a bit more complex. If one spouse expects to live well past the age of 80, total lifetime benefits may be maximized if the higher earner waits to take benefits until age 70, according to Social Security experts, William Meyer and William Reichenstein.
A couple of strategies exist to help higher earners wait until the age of 70 to take their benefits. With the first strategy, called “claim and suspend,” the higher-earning spouse makes a claim for benefits at full retirement age and then immediately suspends the benefit. This allows the lower-earning spouse to claim a spousal benefit. The higher-earning spouse then begins taking actual benefits at age 70. This strategy can work well for couples where the lower-earning spouse would be better off with a spousal benefit rather than his or her own benefit.
Another strategy for married couples involves a spouse who has reached full retirement age filing a restricted application for spousal benefits only, which is 50 percent of the amount the other spouse could receive at his or her full retirement age. He or she can wait until age 70 to file for benefits based on his or her own earnings record, which allows that spouse’s own benefit to keep increasing by .66 percent monthly or 8 percent annually. The other spouse would wait until age 70 to collect his or her benefits. This strategy can benefit couples who can afford to receive a lower income in the first few years of retirement – if the spouse making a restricted application has a slightly higher benefit at full retirement age than the spouse who waits until age 70, and if the spouse waiting to make the claim expects to live a long life.
The rules for claiming Social Security benefits can be complex, and the claiming strategies can be confusing. Seek help from a financial professional who has a solid understanding of the rules and strategies. Rather than simply claiming your benefits as soon as you retire, you may find that the effort spent in deciding the most beneficial strategy for you has been well worth your time.