When you deposit money in the bank, you expect to receive every single dollar when you withdraw it. It’s your money.
Every paycheck, you put money into Social Security. Yet millions of people take less than they’re entitled to when they retire. That’s because the timing of when you claim your benefit and how you do it can have a big impact on how much you get — often for the rest of your life.
Here are five things you should know so that you can maximize your Social Security benefit.
1. DON’T CLAIM BEFORE FULL RETIREMENT AGE
According to the Center for Retirement Research, roughly 45 percent of Americans begin claiming Social Security benefits before reaching full retirement age, permanently — and significantly — reducing the amount they receive every month. Collecting Social Security before you’ve reached full retirement age — frequently referred to as FRA — will significantly reduce your lifetime benefit.
For anyone born in 1960 or later, the full age of retirement is 67 (if you were born before 1960 your retirement age will vary). If you were born after 1960 and you plan to retire at 62 (the earliest you can begin collecting), your monthly Social Security benefit will be reduced by roughly 30 percent for the rest of your life. The penalty gets lower when you claim benefits closer to full retirement age.
So, if you can, avoid collecting early.
2. DELAY FILING FOR BENEFITS PAST FULL RETIREMENT AGE
On the flip side, you can increase your benefit by waiting to claim Social Security. That’s because you’ll receive an 8 percent boost in your benefit every year you postpone collecting (up to age 70). Waiting until age 70 will yield a 24 percent larger monthly benefit for the rest of your life (if your retirement age is 66, that’s 32 percent if you won't retire until 70). Bonus: that also means your annual cost-of-living increase (typically around 2 percent) will apply to a larger sum every year thereafter.
3. UTILIZE SPOUSAL BENEFITS
Married couples have a few advantages when it comes to claiming Social Security benefits. That's because you and your spouse can both claim each of your benefits and at different times. “Our standard advice is to delay taking the higher benefit of the two for as long as possible,” says Glenn Kirst, a senior consultant at Northwestern Mutual.
If you’ve been married at least a year, you will either get your benefit based on your work record or 50 percent of your spouse’s full benefit, whichever is higher. With this is mind, couples should think strategically about who begins collecting and when.
In an ideal situation, the spouse who earned less over his or her career would file to receive his or her benefit at full retirement age. That starts to bring in some money. Then, the higher-earning spouse lets his or her benefit grow and files when they reach 70. If that spouse dies before the other, the surviving spouse will then get the larger benefit for the rest of his or her life.
You can also claim benefits based on your ex-spouse’s work history. So long as you were married 10 years or longer and your ex-spouse is eligible to begin collecting, you are entitled to one-half of your ex’s benefit.
4. ANOTHER YEAR OF WORK COULD GO A LONG WAY
Your Social Security benefit is based on an average of your highest-earning 35 years, which means you’ll want your 35 strongest years on the record if you want a larger benefit.
“Higher lifetime earnings result in higher benefits. If there were some years when you didn’t work, or had low earnings, your benefit amount may be lower than if you worked steadily,” says Kirst.
For the sake of simplicity, let’s say your career was 32 years long because you took some time off or you were just ready to kick back and retire early. Technically that means three zeroes (32 out of 35 years) would be factored into the calculation for your benefit, reducing it as a result. There’s no requirement to work 35 years, it’s just how the system works.
If you’re feeling comfortable with your retirement savings, three more years on the job may not be worth a slightly larger Social Security benefit, especially if you have countries to visit or grandchildren to see. If you still want to string together a few more income-earning years, maybe pick up a part-time job that indulges a hobby or helps other people – something that’s fulfilling.
5. MINIMIZE INCOME IF YOU’RE COLLECTING BENEFITS
You can still work while taking your Social Security benefit, but it could reduce how much you collect. If you begin collecting before your full retirement age and still work, the government will deduct $1 from your total benefit for every $2 earned above $17,640 — there’s no impact if your income falls below this threshold.
If you’ve hit your full retirement age, you can pull in up to $46,920 in income before your benefit starts getting dinged with a penalty — $1 for every $3 earned beyond the limit. Keep in mind, these income limits are periodically adjusted to account for inflation.
EVERY LITTLE BIT HELPS
Social Security was never designed to serve as a person’s primary source of income in retirement — it’s supplementary. Still, that monthly benefit is a source of stable, guaranteed income that’s a crucial part of many people’s retirement plan. Ultimately, you paid into Social Security your entire career, so why not get every penny you’re entitled to?