Many Americans believe that Social Security benefits simply kick in once they retire. It’s not that simple, however: You must decide when and how to take Social Security, and your choices will have a significant impact on the amount of benefits you receive over your lifetime.
Maximizing Social Security income has become more and more important over the years as Americans’ life expectancies have steadily increased. The key to gathering the most benefits possible is patience: The longer you wait to start taking benefits, the larger your monthly checks will be.
Thus, while you can take Social Security as early as age 62, you will receive 25% to 30% more each month if you wait for full retirement age—66 or 67 depending on your date of birth.
Those who can wait even longer for their benefits can profit further. Every additional year that you want past full retirement age, your benefits grow by 8%. And earning 8% guaranteed, in the current low-yield environment, is a terrific investment. As long as you have enough liquidity to fund your retirement, waiting until age 70 can be a good decision.
Another popular way to maximize your benefits is what is called the file-and-suspend strategy. When you file and suspend at full retirement age, you apply for Social Security benefits, and simultaneously direct the Social Security Administration to suspend those benefits.
Why would you do that? Because it triggers your spouse’s eligibility for his or her spousal benefits. The overall strategy is best illustrated with an example: A husband files and suspends at age 66. His wife then begins drawing spousal benefits, which total half of her husband’s monthly benefit amount.
Once he turns 70, the husband resumes his Social Security benefit, which is now at the maximum amount. Then, when his wife turns 70, she claims benefits under her own name. Because of her work history, her own benefit is higher than her spousal benefit. Such a coordinated strategy can amount to tens of thousands of dollars in extra benefits over a couple’s retirement years.
Obviously an identical approach will not work for everyone. If your family has a history of short life expectancies, you may want to start taking benefits as early as possible. Other factors that must be figured into your Social Security timing decision include your age, liquid assets and retirement goals; there is no one-size-fits-all approach.
We encourage you to speak with your advisor about the best way to maximize your own benefits. By doing the planning now, you will know exactly when and how to claim Social Security to maximize its value to you.