Maximize Your Social Security Benefits
By Rick Welch April 13, 2015
How do we maximize our social security benefits? A simple, straight-forward question with many answers. Choosing the best answer that fits you, your current circumstances and what your future may hold is a bit more difficult. We suggest that whatever decision you make that it be one that is more than just about the numbers. Writer Andy Landis offered these words on Marketwatch.com: “It is not just social security (or in a larger sense your total retirement dollars) that you want to maximize, but your retirement life. You want to maximize your experiences, your connections, and your growth, while making sure your financial decisions align with your personal goals and values.” That sounds like good advice to us.
There are many factors to consider when determining the optimal age by which you will begin to receive your benefits, which can begin as early as age 62 and as late as age 70, or at an age in between. A claiming strategy is a study or plan which uses mathematical modeling to pinpoint an optimal start date. Most claiming strategies are written with the two goals shared by most retirees in mind: maximizing expected lifetime benefits and minimizing longevity risk (Will I outlive my money?). To accomplish these goals, a claiming strategy must take into account your relationship status (married, single, widow or divorced), estimated retirement benefit, age, life expectancy, current and expected spending needs, whether or not you plan to continue working and other retirement assets.
A primary building block for a claiming strategy is your Primary Insurance Amount (PIA) which is the retirement benefit that you would receive if claimed at the full or normal retirement age. To get an idea of what your PIA will be, please go to www.ssa.gov/mystatement. At present, full retirement age ranges from 65 years and 8 months (if born in 1941) to 66 years (if born in 1943 to 1954) to 67 years (if born in 1960 or later). If you are already retired and making withdrawals from retirement savings, it might be a good idea to consider claiming your benefits early at age 62. But, beware there is a catch. In the case of early benefits, your benefit is reduced by 5/9% for each month before normal retirement age, up to 36 months. After 36 months (and up to the 60th month) your benefit is further reduced by 5/12% per month. The total reduction of your PIA could reach 30% which means, for example, that your early social security monthly benefit would be $700 now versus $1,000 per month had you waited until your full retirement age.
In some cases, it might make sense to delay claiming your benefits until after reaching full retirement age. Delayed retirement credits are earned at the rate of 2/3% (which equals 8% per year) of the PIA for each month (after full retirement age) that your benefit is not claimed. You may delay receiving your benefits until age 70. Following the earlier example, if you delayed receiving benefits until age 70 your PIA would be increased from $1,000 per month to $1,240. Now we can see how a claiming strategy might help as your monthly benefit could range from $700 (early at age 62) to $1,000 (full retirement age of 67) to $1,240 (delaying benefits until age 70).
If you are soon-to-retire and need assistance in preparing and evaluating a claiming strategy seek out a financial advisor who can describe and illustrate clearly your options. In the case of a married couple, a file and suspend strategy might also prove to be a viable option. Whatever your decision may be, we suggest that you not get lost in the charts and data! This is a personal decision and there is no correct or incorrect answer, only the answer that best fits you and your family.
