Are you nearing the age in which Social Security is becoming an issue? Are you dreaming of your golden years and a prosperous retirement? This week the blogs will be dedicated to the issue of Social Security as the next post will deal with a quiz on Social Security that 72% of 1,500 Americans failed when asked a ten question quiz by MassMutual. But that will be further addressed on Thursday. This post will focus on when and how to start your Social Security benefits to maximize your benefits potential. While Social Security can be intimidating and seem daunting at times with a little planning and some outside assistance anyone can take full advantage of the system.
People who are collecting benefits now have set amounts that they will receive monthly for the rest of their lives with an annual cost of living adjustments to help combat inflation. For those of us who are years away from collecting our benefits, the politicians may tinker with the benefits and how they are collected to keep the system viable for future generations. But that is something that no one knows what will or could happen as our elected officials and everyone knows the system needs an overhaul, but no one wants to cut or do massive changes that will affect millions of potential voters. So my guess is any changes will be gradual and over a prolonged period as to not upset the voters.
Now married people do have a distinct advantage over single people when it comes to claiming their Social Security benefits. In fact, married couples or people who were married for at least ten years have numerous options for claiming their benefits. As most everyone knows anyone who has worked 40 quarters or ten years is eligible to collect benefits starting at age 62 but at a reduced rate. In fact, for every year you elect to receive your benefits prior to your full retirement age you will lose about 6% of your benefit for the rest of your life. And for those who think age 65 is your full retirement age that may not be the case. For those born prior to 1960 it is based on the month you were born and is scaled from 66 to 67 for people who are eligible to retire now. For those born after 1960 your full retirement age is 67. Now everyone can elect to collect early and forfeit that percentage of their benefits based on several reasons. But if you elect to delay your payments until age 70 you will actually receive a bonus of 8% a year for a maximum of 24% in additional payments for the rest of your life when it comes to benefits.
For a married couple, there are some options that are available as far as benefits are concerned. If the main wage earner is at full retirement age, their spouse can claim spouse benefits that can be 50% of the other spouses benefit. Now both spouses must be at least age 62 with the main earner being at full retirement age, if the spouse claiming the benefits are not at their full retirement age they will receive less than the full 50%. For this to work, the main wage earner must file and suspend their benefits to a later date, hopefully, age 70 to maximize the extra benefits for delayed payments. This works well for couples who one earner earned considerably less than the other or one spouse stayed home to care for children and did not work for a full 35 years. This strategy can also work for an ex-spouse who wants to claim her former partner’s benefits when they reach age 62 and then collect their own benefits when they reach full retirement age and can start collecting their benefits. They key there is that you were married for at least ten years, divorced for two and have not re-married.
That is the main technique used for married or divorced couples to maximize their benefits but what can a single person do to maximize their benefits? Well, here the key is a simple one that does follow the married technique of filing and suspending your payments. If you were to pass your full retirement age and had not filed and suspended your payments you would only be able to go back and claim six months of payments when you did file if you were to file prior to age 70. But if you did file and suspend you can claim and emergency you are eligible for all of your benefits from the time to claim all the way back to when you suspended the payments. If you did that at age 66 and waited some 30 months you could be looking at a $75,000 payout that can be used for terminal illness or long-term care. It is nice to have that option if you chose it.
Now many people want to start collecting at age 62 because they do not think that they will live very long, or the simply do not want to work and cannot afford to not claim the benefits. Others will delay payments until age 70 to maximize their earnings potential, and they may still even be working, so they do not need the benefits payments. When it comes to electing to take Social Security payments that is one only you can answer. You need to look at if you want to work longer, can afford to retire and not rely on the benefits, or the longevity of your family history. And when in doubt always seek the advice of a financial planner or professional.
If you have any questions on Social Security or anything else, feel free to contact me.
