My Comments: For most 21st Century Americans who live long enough to retire, a monthly check from the Social Security Administration is at the core of their future financial freedom. This is a state of mind that says we “have enough money coming in to pay our basic bills for shelter, for food, for transportation, and other basic needs”.
And since we live in a society where more money is better than less money, you owe it to yourself to understand how that monthly check is calculated.
Selena Maranjian, The Motley Fool – July 2, 2016
If you want to improve your retirement, look into how you can get more benefits from Social Security — because it’s a significant retirement income generator for most of us. According to the Social Security Administration (SSA), the majority of elderly beneficiaries get 50% or more of their income from Social Security, while 22% of married elderly beneficiaries and 47% of unmarried ones get fully 90% or more of their income from it.
Here are 10 smart ways to get more benefits from Social Security.
- Work for at least 35 years. The formula the SSA uses to compute your benefits is based on your earnings in the 35 years in which you earned the most. If you only earned income in 28 years, the formula will incorporate seven zeros, which will shrink your benefits to some degree. Are you planning to retire after 33 years of work? It might be worth it to work two more years if you want to get more benefits.
- Earn more. Since the formula focuses on your 35 highest-earning years, another way to increase your benefits is to beef up your earnings. You may have 35 years of earnings already, but if you’re earning $85,000 now and some of your early years feature incomes of, say, $15,000, you can increase your ultimate benefits by working a little longer so more of your high-income years can be included in the calculations, replacing some low-income years.
- Check your record. You can look up the SSA’s record of your income and taxes paid into the Social Security system any time, and see estimates of your future benefits, at the SSA website. It’s worth an occasional visit in order to make sure your earnings and taxes paid are correct. If they’re not, you might end up receiving smaller benefit checks than you’ve actually earned.
- Delay collecting. A simple way to make your Social Security benefits bigger — potentially a lot bigger — is to delay starting to collect them. You can start as early as age 62 and delay up to age 70. Each of us has a “full” retirement age (typically 66 or 67 these days) and for every year beyond that you delay, your benefits will grow by about 8%. Delay from age 67 to 70, and you’ll get benefits that are 24% bigger.
- Start collecting at 62. If you live an average life span, though, you won’t come out ahead much by delaying, because you’ll get fewer checks, in total, than those who started earlier with smaller checks. If you live much longer than average, though, waiting will have been worth it. But if you have reason to believe you will live a shorter-than-average life, or you simply need the money, go ahead and start collecting early.
- Collect a spousal benefit. If your spouse has a richer work history than you do, you may be able to collect a “spousal benefit,” based on your spouse’s earnings and not your own. Spouses can collect benefits worth up to 50% of their other half’s benefits. This can be particularly welcome for spouses who never worked or earned very little.
- Don’t earn too much if you’re working in retirement. If you’re planning to start collecting benefits before your full retirement age and you want to work some then, too, be careful — because after a certain point, your benefits may be reduced. The SSA explains: “If you’re younger than full retirement age during all of 2016, we must deduct $1 from your benefits for each $2 you earn above $15,720.” The year you reach your full retirement age, the earning limit jumps to $41,880, and the penalty decreases to $1 withheld for every $3 earned above the limit.
- Delay your divorce. If you’re divorcing after, say, nine years of marriage, consider staying married until 10 years have passed — if you can. Divorcees may be able to claim benefits based on their ex-spouse’s earnings — even if that ex has remarried — if they were married for at least 10 years. There are a few more rules related to this, so look into them if this might apply to you.
- Look into survivor and disability benefits, too. Social Security isn’t just about retirement. There are survivor and disability benefits available, too, as well as retirement benefits for dependents of retirees, in some cases. If your spouse passes away, you may be able to claim survivor benefits — and your children may receive them, too, through age 17. Social Security also offers disability benefits to people of all ages who qualify.
- Strategize. There are many more strategies related to Social Security benefits than you may realize. For example, if you’re part of a couple, or if you’ve lost your spouse, look into how much you can collect, and when, on your own record or on your spouse’s, ex-spouse’s, or late spouse’s record. You may be able to collect one early, then switch to another. Don’t be afraid to tap the services of a professional financial advisor, either, as a good one might be able to steer you toward a benefit-maximizing strategy. Favor fee-only financial advisors, whom you can find via referrals from friends or at the website of the National Association of Personal Financial Advisors.
When it comes to Social Security, the more you learn, the more you might collect.