Updated: Nov 18, 2021
This is our third post in our Social Security educational series. The first two articles cover What Will Happen When Social Security Runs Out? and Why the Social Security Increase Isn’t as Much as You Think.
Social Security accounts for over half the total income for 61% of the Social Security claimants who are age 65 or older. Roughly one third (33%) of Social Security claimants reported that nearly all of their retirement income came from Social Security. With Social Security being such an important income source for retirees, maximizing benefits should be at the top of the retirement planning checklist. (1)
Today, we will reveal 5 ways to maximize your Social Security benefits.
1. Work at least 35 years
Social Security benefits are based off your highest 35 earning years. That means if you retire with only 30 years of Social Security tax paid in, your benefit will be averaged by calculating 5 years of $0. Additionally, if you retire with exactly 35 years of earnings, your early earning years could negatively impact your overall benefits due to the low wages you were receiving in your teens.
Keep in mind that wages as a public employee will not count toward your Social Security benefit unless your employer is withholding Social Security from your paycheck. In addition, if you will be receiving a public pension, any Social Security benefit you receive may be reduced by the Windfall Elimination Provision. To read more about how the WEP may affect you, read here.
2. Wait to claim benefits until your full retirement age
Another common mistake made when claiming Social Security benefits is claiming too early. Roughly 34% of Americans claim Social Security benefits at age 62, and nearly 60% of retirees claim Social Security before their full retirement age. (2)
Claiming your benefit early will result in roughly 6% less benefit for each year you claim prior to your full retirement age. This means that taking your Social Security early could reduce your benefit by 30% for the rest of your life.
One reason that people claim to take Social Security early is that they want to get the most benefit during their life. The downside to this method is living above age 78. After age 78, your lifetime benefit will be higher by waiting to claim your benefits.
3. Delay claiming your benefits until age 70
In our previous point, we discussed waiting until full retirement age to claim your Social Security benefits. By waiting until 67, your monthly payment would increase by 30%. If you have the financial assets to hold out 3 more years, delaying your Social Security beyond 67 could increase your benefit by another 24%.
See the following example. A retiree has a projected monthly Social Security benefit of $2,000. If they were to take the benefit at the earliest possible age of 62, their monthly payment would only be $1,300. Now, assume that same retiree instead waited until the age of 70 to claim Social Security. The result would be a monthly benefit of $2,480. By waiting 8 years to take their benefits, a retiree could increase their annual benefit by over $14,000!
4. Don’t forget about spousal benefits
Even if you do not have a full work record, if you were married for at least 10 years to someone who is claiming Social Security, you will be entitled to the greater of your own benefit or 50% of their benefit.
Keep in mind the following points about spousal benefits:
Even if you are divorced, as long as you were married for at least 10 years you will still qualify for spousal benefits
The spousal benefits is also subject to the early claim penalty, meaning that you should wait until 67 to maximize your benefit
If you know that you will be receiving a benefit based off a spouse’s record, it will not benefit you to wait until 70 to claim Social Security. The delay credits will only apply to your own earnings record
5. Review your statement
The final step to maximize your Social Security benefits is to make sure that your earnings are being fully accounted for. The best way to do this is to create an account on the Social Security website here and to review your annual statement to confirm that all your earnings were property accounted for. Doing this step on an annual basis will help to eliminate any confusion over earnings when you eventually go to sign up for your benefits.
If you have any questions about your personal Social Security maximization techniques, click the button below to schedule a meeting to review with us.
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