For many retirees, Social Security benefits make up a sizable percentage of the money they live off of in retirement. Even small increases in the amount of Social Security payments can make a huge difference in a retiree’s quality of life, so it’s worth taking the time to maximize benefits. The problem is, figuring out which Social Security claiming strategy is best can be incredibly difficult. Even the Social Security Administration (SSA) representatives often provide inaccurate information. To make sure you’re not leaving money on the table, you’ll need to consider all your options, do your research, and consider getting a second opinion from a financial advisor. Explore these Social Security claiming strategies to help maximize your benefits.
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Understand How Social Security is Calculated
To understand how to maximize your Social Security benefits, you first need to understand how Social Security is calculated. The calculation process is actually quite simple. There are two factors that affect the amount of your Social Security payments: how much you earned while working, and when you decide to start receiving payments. This is simple enough, but what becomes complicated is how different decisions affect these calculations. The number of options and factors to consider also increases for those who are married, divorced, or widowed.
Consider Working an Extra Year
Your Social Security payment is calculated by averaging your highest paying 35 years of employment. If you worked for less than 35 years, zeros are averaged in, which lowers your payment amounts considerably. This means that if you earn considerably more than you did earlier in your career, or if you haven’t yet worked for 35 years, even one extra year earning income at your current rate could increase your Social Security payments. One important note, though, it that of 2019, the taxable maximum for Social Security is $132,900. Anything over the taxable maximum will not factor into your average.
Avoid Claiming Before the Full Retirement Age
If you start taking Social Security benefits prior to your full retirement age, you receive reduced monthly benefits. In certain circumstances, the reduced payments may be worth having access to Social Security earlier. But as a general rule, it usually pays off much more in the long run to wait to claim Social Security until you reach the full retirement age. Again, though you may earn more money by waiting, there are certain circumstances, both financial and health-related, when a smaller amount of money now is preferable to a larger sum later.
Delay Claiming After the Full Retirement Age
It’s usually a good idea to wait to claim your Social Security benefits until you reach the full retirement age, but it may be an even better idea to delay claiming Social Security. Not everyone has the financial flexibility to delay claiming Social Security, but for every year beyond the full retirement age—up to age 70—that you delay claiming Social Security, you accrue delayed retirement credits. These delayed retirement credits equal about an 8% increase in your Social Security payments for each year that you delay. Even claiming one year beyond the full retirement age can have a noticeable impact on your Social Security payments.
Even if you’ve already begun claiming Social Security, you can still take advantage of the delayed retirement credits. If you’re between full retirement age and 70, you can suspend your Social Security payments. For every year you suspend your payments, up to age 70, you can still earn an 8% increase per year.
Considerations for Married Couples
There are also some Social Security strategies specifically for married couples. If you’re married, you’re eligible for Social Security payments that are 50% of the value of your spouse’s benefits. If this is more than the benefits that you would receive, then this can be a great option. In order to receive the full 50% of the value of your spouse’s benefits, you’ll need to claim Social Security benefits at the full retirement age. Just as you’ll earn less if you claim your Social Security early, if you claim your Social Security spousal benefits prior to your full retirement age, you’ll also receive smaller monthly payments.
Even if you are no longer married to your spouse, but you were married for at least ten years, you are still eligible for spousal benefits. The same applies if your spouse is no longer living. When a spouse passes away, the surviving spouse is eligible for survivor benefits. This means that the spouse can elect to receive the deceased spouse’s benefits.
We hope you consider these Social Security claiming strategies to help maximize your benefits. Social Security claiming strategies may be complicated, but even a little extra time and energy spent evaluating your options can have a major impact on the amount of benefits you receive. The Social Security Administration isn’t going to notify you if you’re not taking advantage of Social Security benefits. It’s up to you to be proactive and ensure you’re getting everything you’re entitled to. For personalized advice, consider working with a financial advisor from Modern Family Asset Management today.