Possibly the most important question you can ask before you retire is how to maximize your social security benefits. The short answer is yes, you can, but the strategy depends on your personal situation. Social Security has been in the news a lot recently. On the positive side, recipients received an 8.7% cost of living adjustment for 2023, the highest COLA since the 1980s.
There was a 14.3% increase in 1980 and an 11.2% increase in 1981. On the negative side, there are concerns that SS will only be able to pay $780 out of every $1,000 in scheduled benefits starting in 2034.
The bottom line is that Social Security, by itself, is not a retirement plan. It was never supposed to be your sole source of income in your retirement plan.
On average, this program was designed to provide about 40% of your pre-retirement income, even less for higher-wage earners. This is one of the reasons why financial planning is so important. These benefits should only be one part of your retirement puzzle.
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Before claiming benefits, it is helpful to schedule a meeting or call with the social security administration. They can answer your questions and guide you to maximize your social security benefits by helping you:
- Understand the different benefits based on your age
- Determine the impact the social security tax will have on you
- Calculate your benefits at the different options including when you reach your full retirement age
- Understand how continuing to work will impact your benefit
- Options on how to claim social security
- How higher earnings will impact you
- What to do if you have reached full retirement age
Here are five strategies to help maximize the benefits you and your family may receive.
1. Go to SSA Website and download your most recent statement, so you know what your options are.
There is a wealth of information here that will help you with your strategy. Look at your earnings record and ensure it is accurate for every year you have worked. If changes are needed, there is contact information to help you get it corrected.
Most people’s highest earning years are the last few years they work. Your benefit is the average of your top 35 years of earnings. If you have only worked 30 years, there are five years of zero income, reducing your benefit.
If you’ve worked 40 years, those last five years will replace your lowest income years and provide you with a higher benefit. For some people, it might make sense to work a year or two longer, either full or part-time, to increase their social security income. In most cases, your benefit at 70 will be significantly higher than it would be at 62.
The SSA website has calculators that can assist in estimating your benefits. It allows you to analyze different points in time based on what you think your earnings will be and when you will start collecting social security. Click here to access the calculator. You can also work with a financial advisor to run your numbers.
2. How long do you think you will live? Why is this important?
Ok, no one has a crystal ball. However, it is possible to make an educated guess about your life expectancy based on your current health and family history. Knowing what your social security breakeven point is at different ages is critical.
Here are some examples: Joe and Sarah are 62 years old. They have diabetes, and their parents passed in their early 70’s. Taking their benefits before full retirement age may be the best way for them to maximize their SS income during their lifetime since they don’t have a long life expectancy.
Dave and Lynn are also 62. They don’t have any health issues, and their parents are all in their late 80s. Because their life expectancy is longer, it may be lucrative for them to delay their retirement credits to age 67 or 70. This will help them maximize their benefits if they live into their 90s.
3. Here’s a tip to maximize your survivor benefits: If you are married, consider starting social security at different ages.
Unfortunately, when your spouse passes away, you only get to keep the higher of your two social security incomes. Many people don’t realize this. It can have a significant impact if one spouse passes early and the other lives for several more years. One option might be for the spouse with the lower benefit to take theirs early, while the spouse with the higher benefit might delay taking theirs until age 70.
Here are two examples.
Joe and Sarah both take their benefit at age 62. Joe’s SS is $2,500, and Sarah’s is $1,400, totaling $3,900 monthly. Hypothetically, if Joe passes at 64 and his SS has gone up to $2,600, Sarah will now only receive $2,600 a month. Sarah will now have $31,200 in SS income a year. That’s a drop of $17,700 a year.
Dave and Lynn decide to take Dave’s benefit at 62 ($1,400) and use some of their other assets to live on while they delay Lynn’s benefit until age 70 ($4,200). Lynn passes at age 72, and now Dave will have approximately $4,400 a month or $52,800 a year in income.
4. Maximizing SSI benefits if you are divorced
If you are at least 62, were married for ten years or more, and are currently unmarried, you are entitled to spousal benefits under social security. If half of your ex-spouse’s benefit is more than yours, you may apply under their record and receive the higher benefit.
Suppose your ex-spouse has not started taking social security. In that case, you must be divorced for at least two straight years before applying under their benefit. If you were born before January 2, 1954, please contact SSA as different rules apply.
The following is a benefit most people are not aware of. If your former spouse has died, you are eligible for survivor benefits provided you were married for ten years or more and you did not remarry before you reached age 60. If you qualify, you can receive your ex-spouse’s full social security payment if it is more than yours. And yes, if your ex had multiple spouses, they can all receive the full benefit if they meet the criteria.
5. Create a financial plan before you retire!
If you don’t have a financial plan, there’s no time like the present to start planning for your future. Social security is only a tiny part of your overall retirement picture. Even if waiting until 70 to take your benefit makes sense, you may not want to wait that long to retire.
A great place to start is by asking a few questions:
- What are your options for filling the income gap before 70?
- Do you have a pension or other source of guaranteed income besides SS benefits?
- Will you need to take money out of your assets to cover your monthly expenses?
- How much do you want to set aside annually for your fun fund?
- Do you want to leave a legacy for your kids or your favorite charity?
- How long do you want to work?
If you enjoy your work, you should continue as long as you want. However, I want them to pick the year when the decision to continue their career is a choice, and they do it because they want to, not because they must.
In Conclusion – Maximize Your Social Security Benefits
As you can see, maximizing your benefits doesn’t have a one size fits all solution. There are many possible strategies based on your specific needs, assets, sources of income, and life expectancy. Take time to develop your retirement plan, so you know what adjustments you need to make as life changes.
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