Making the most of Social
Security could significantly boost your retirement income. But how do you do
it? The biggest blanket piece of advice out there is to delay taking benefits,
and it does have merit. But it's not at all the whole story. You should take into
account a number of considerations when it comes to Social Security, so you can
learn to apply the rules in a way that makes sense for you.
Let's start with a short primer on Social Security benefits and how
Your "full" retirement
age benefit starts somewhere between 65 and 67, depending on the year you were
born, and the amount of money you get is based on an inflation-adjusted average
of your 35 highest-earning years.
You can start taking Social
Security benefits as early as age 62, though it means your monthly benefit
amount will be permanently reduced by about 30% from the full benefit amount
(the actual amount you receive will depend on your current age, full retirement
age and income). On the other hand, you can delay benefits and see them grow—if
you wait until age 70, your monthly Social Security benefit will grow to about
135% of your full benefit. (For more on how benefits are calculated, please
visit the Social Security Administration. The "Your Retirement Benefit:
How it's Figured" publication can help.)
For many retirees, this begs the
question: Is it better to delay and get fewer years of higher income, or start
early and get more years of lower income?
The right answer depends on your
individual situation, including your other income sources, your life
expectancy, your spouse's benefits and your risk profile. But while there's no
one-size-fits-all solution, there are ways of thinking about benefits that can
help you find the right answer for you.
Capitalizing on Spousal Benefits
If you're married (or were
married for more than 10 years and did not remarry), you may be eligible for
The maximum amount you can
receive is 50% of your partner's full retirement age benefit. In other words,
if your spouse starts taking Social Security at full retirement age, you can
receive half that amount. If he or she waits until age 70, their benefit would
increase but yours would stay at 50% of the full retirement age benefit.
Because of this setup, it
typically makes sense to use a spousal benefit if one person earned
significantly more than the other.
Just remember to strategize so
that your total benefits are maximized. For example, you might consider having
the lower-earning spouse start taking benefits at age 62 while the higher
earner waits until age 70. At that point, the lower-earning spouse can switch
to a spousal benefit—depending on your personal situation, this could result in
more Social Security income over time.
Plan for Low Interest Rates
Every year you delay taking
benefits "earns" you 8% in additional Social Security income in the
future. That basically means you could get a larger rate of return on your
Social Security benefits than you would on many investments—and Social Security
is guaranteed. Not only that, but Social Security benefits are indexed to
inflation, meaning that once you start receiving your checks, they'll keep pace
with the rising cost of living.
So, when choosing between
starting Social Security and using your investments to supplement your
retirement income, you might want to consider which one could give you the
better rate of return. If your portfolio isn't yielding much, you may be better
off using more of it to help finance your retirement while delaying Social
Security benefits. Also, be aware that your decision could impact your estate
plan: using your investment assets might mean less money in your estate.
Of course, what works for one
person might not work for another. Your personal financial situation is unique,
so it's impossible to give simplified advice about something this complicated.
But comparing yields and considering the estate planning implications could
offer you some food for thought as you map out your own plans.
Consider Your Health
Financial need is a major reason
people start Social Security early, and in these situations, it's difficult to
justify hardship in exchange for higher income later. Similarly, if you're
chronically ill or in poor health and concerned about lifespan, it might not
make sense to delay.
These are tough questions, and
the right answer is unique to each individual. Just remember that while the
math can point you in the right direction, it can't address all the qualitative
issues that make up your life. Be sure you feel comfortable with your choice in
the context of the big picture.
Run the Numbers
If you're looking for ways to
maximize your family's benefits or if you'd like to find out what your own
possible benefits could be, head over to the Social Security Administration's
Benefits Planner website. From there, you can learn about the benefits you
might be eligible for and use the SSA's free calculators to help optimize your
own Social Security plan.
For personal help and advice,
consider making an appointment with your local Social Security office. Be sure
to come prepared with questions and any supplemental information that could
help you make your decisions.
At the end of the day, the
important thing is to educate yourself about Social Security and have a plan.
Click here for the original article in Kiplinger