One of the more critical financial decisions you will make in retirement is WHEN and HOW to start your Social Security payments. A significant portion of your wages went into Social Security during all the years you worked, and retirement is your opportunity to get that money back. Making the right choices can make all the difference.
In an ideal world, the system would be straightforward and easily understandable. It probably won’t surprise you to hear that Social Security rules are so complex that few people know how to maximize the amount they receive over their (and their spouse’s) lifetime. I can assist you with information on ways to help coordinate your Social Security benefits within your overall retirement plan. There are a number of custom software programs designed for this purpose.
The first question is, “When should I start it?” Many people tell me they intend to take it as soon as possible, which is usually age 62. Yet each year you wait between the ages of 62 and 70, the amount you will get increases by up to 8 percent a year.1 So you must calculate what is the best year to start Social Security to help maximize your total income given certain assumptions, such as how long you will live.
And marriage makes it even more complicated (doesn’t it always seem that way?). Remember that when one spouse dies, the survivor generally gets the higher of the two Social Security amounts. So it may pay the spouse to wait until age 70 to maximize the benefit not only for them but for their spouse if the spouse should outlive them. But that doesn’t mean they can’t collect benefits in the meantime. They may be able to collect part of their spouse benefit.2
David and Sandy’s Hypothetical Example
Let me use my wife, Sandy, and I as an example. Over the years, I earned more wages than Sandy (though she worked harder; she stayed home and raised our two daughters). Sandy is also a few years older than me. So when I ran our situation through the software, it came up with the following strategy (it assumes I die in 2041):
Sandy begins benefits based on her earnings record in April 2018 at age 66. David files a restricted application for spousal benefits only in September 2022 at age 66 and 4 months. David switches to benefits based on his earnings record in May 2026 at age 70. Sandy adds spousal benefits in May 2026 at age 74 and 1 month. In May 2041, Sandy begins survivor benefits.
What this means is Sandy starts collecting her Social Security at age 66. When I turn 66, I collect half of Sandy’s. When I get to age 70, I start my Social Security, at which point Sandy gets an automatic boost (since a spouse who hasn’t worked as much usually gets at least half their working spouse’s full retirement age Social Security). When I die, she gets my higher amount.
How much more retirement money will this strategy bring vs. us both taking it at age 62? The software predicts that if we live to a ripe old age, it could be as much as $198,130! I don’t know about you, but I like the idea of collecting an extra $200,000 in retirement. But figuring this out is complicated. Without the software, I would have had trouble coming up with the right answer.
This is a hypothetical example provided for illustrative purposes only and should not be construed as advice designed to meet the particular needs of an individual’s situation.
Maximizing Your Social Security
So how do you help maximize your Social Security? In most cases, you really need to run it through a software program to determine the best possible strategy. Call our office at 910-815-3100, set up a meeting or phone call, and I will run your numbers through the software to find out what strategy may be best for you. I will do this at no obligation to you. It may be a way for me to help people and allow us to get to know each other.
It May Not Be Too Late
If you have already considered when you plan to start your Social Security payments, you may want to consider taking another look.
1 Social Security Administration. “Social Security Benefits.” https://www.ssa.gov/oact/ProgData/ar_drc.html Accessed Oct. 19, 2017.
2 Social Security Administration. “Survivors Planner.” https://www.ssa.gov/planners/lifeexpectancy.html. Accessed Oct. 19, 2017.
Financial professionals are able to provide you with information but not guidance or advice related to Social Security benefits. Carolina Retirement Planners is not affiliated with the U.S. government or any governmental agency.