Recent statistics from the SSA show that almost 90% of senior citizens (65 and older) rely on social security benefits for a substantial portion of their retirement income. While our financial planning strategies will help to supplement these payments with additional savings and investment returns, we still want to ensure that you are optimizing every possible source of income in your non-working years.
When it comes to maximizing social security benefits, the main question is when to start claiming them.
Factors to Consider
FRA
You can begin collecting social security benefits from the age of 62, although you will only be eligible for full benefits once you reach full retirement age (FRA). The FRA will continue to increase until it reaches 67 for individuals born in or after 1960.
If your FRA is 67 and you decide to claim benefits at 62, then your monthly income will be reduced by 30%. The amount you’re entitled to receive will increase for every additional month that you delay your claim. By choosing to collect at 65, you can retain 86.7% of your full benefit instead.
You may also decide to claim benefits after your FRA. Doing so will entitle you to retirement credits that will increase your monthly payout. These credits will continue to accumulate until the age of 70.
How Benefits Are Calculated
Social security benefits are calculated based on your average adjusted earnings over the 35 years in which you earned the most income. If you worked less than 35 years over your life, then these zero-income years will be included in the calculation. A period of unemployment could significantly impact your benefits so make sure to maximize your earnings while you can. In order to be eligible for benefits, you must have earned above the minimum threshold limit in at least 10 of your working years.
Working While Claiming Benefits
While you are entitled to work while claiming benefits, your payments will be reduced by any substantial earnings over the threshold limit. In 2018, these limits are set at $17,040. However, once you enter the year of your FRA, the limit is increased to $45,360, and deductions to your benefits are reduced as well. These limits are removed altogether starting from the month you reach your FRA.
Spousal Benefits
Current spouses and ex-spouses who were married to their partners for over 10 years (without remarrying before the age of 60) are eligible for spousal benefits once they reach the age of 62. These benefits cannot be claimed until the partner in question has begun to claim benefits. Spousal benefits are calculated on your spouse’s earnings at FRA, you will be entitled to 50% of this amount. This calculation will be affected when you and your spouse decide to claim benefits.
Strategies for Claiming Social Security Benefits
The Long Game
While every client is different, we generally advise individuals to put off their benefits claims for as long as possible. This strategy will be particularly effective if you are working well into your 60s or if you have substantial savings and investments to cover your living expenses over this period.
Studies show that only 24% of retirees wait until their FRA to claim benefits, which means that the vast majority of people are going into their retirement years with less than optimal income. While we understand the urge to take early payment when it’s available, your decision may leave you scrambling in your 70s and 80s when your retirement savings become depleted. The longer you delay your claim, the more assurance you will have of living well in later life. This strategy will also increase the amount of survivor’s benefit due to your spouse.
The Early Bird
Of course, in certain circumstances claiming reduced benefits may be the better option.
- If you have serious health issues that may prevent you from enjoying a larger income later in life, then you may decide to claim your social security benefits while you are still in relatively good shape.
- If you have been forced out of the workforce at an earlier age and you need income to sustain your current lifestyle, then you may have no choice but to claim benefits before your FRA.
- If you are single and you don’t have to worry about how your spouse or other dependents will live after you pass, then you may opt for early benefit.
Licensed Insurance Professional. Provides general information about insurance and retirement-related products and services. These products and services may not be specific to a particular state. Information provided on this website, in seminars or through printed or other published materials are not intended as specific legal, accounting or investment advice to an individual’s particular situation. By providing your information to us, you agree that we may contact you regarding the potential sale of annuity and/or insurance products. Information provided by Licensed Insurance Professional does not necessarily represent that of the individual professionals presenting this information. All the information presented is believed to be accurate and is secured from reliable resources, however, no guarantee is made to the completeness or accuracy of the information presented. Any opinions expressed are those of the author and the material presented is for educational and informational purposes only and is not intended as legal, investment or tax-related advice.
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