What’s Your Plan to Maximize Your Social Security Benefits?

Social Security age11

Are you approaching Social Security age? If so, you may be facing a difficult decision about when and how to file for benefits. It could be an important decision. If you’re like many retirees, Social Security will play a large role in your retirement funding strategy.

Your decision on when and how to file will likely be permanent. Once you have filed and are receiving benefits, in general, your Social Security benefits cannot be altered or adjusted. While your payment may increase in the future because of cost-of-living adjustments, you likely will not have the opportunity to change your filing status. 

Given the importance of your Social Security benefit amount and the impact it will have on your standard of living in retirement, it will be helpful for you to understand how your benefit is calculated.

The Social Security Administration considers a number of factors when it calculates your benefit, including your career earnings, your marital status, and your age at the time you file for benefits.

You can use those three factors in your planning to maximize your benefit amount. Below are a few things to consider when planning your Social Security strategy:

Replace low-earning or no-earning years.

One of the most effective ways to increase your benefit is to work a few extra years. That’s especially true if you took a break in your career or if you had several years with low earnings.

Social Security bases your benefit on your career earnings. They calculate this benefit by averaging your 35 highest-earning years. However, when you don’t have 35 years of earnings, the calculation counts the years with no income as zeros. That can bring down your average, as can low-earning years.

You want to analyze your earnings history. The formula uses the years determined by your history. If you earn a substantial amount in those extra years, the agency could replace your low-earnings or no-earnings years in the calculation, which would boost your average annual income and, subsequently, your benefit amount.

Delay you’re filing as long as possible.

Perhaps the easiest way to maximize your benefit is to wait to file. Generally, the longer you delay your filing, the higher your benefit will be. You are eligible to file for benefits at age 62. However, your full retirement age is likely 66 or 67. Full retirement age (FRA) is the age at which you can receive 100 percent of your benefit. If you file before your FRA, you may see your benefits greatly reduced.
There’s nothing saying you must file at your FRA, though. In fact, your benefit could increase if you delay your filing past your FRA. Social Security provides an 8 percent benefit credit for each year that you delay filing past your FRA, up to age 70. For example, if your FRA is 66 and you delay filing for four years, to age 70, your benefit would increase a total of 32 percent, or 8 percent per year over four years.

Take advantage of a change in marital status.

Your marital status is another big factor in your Social Security benefit calculation. If you plan to get married before you file or have recently married, your benefit could increase. Similarly, if you haven’t remarried after a recent divorce, you may be eligible for strategies that could provide a higher benefit.
As a married couple, you are able to take advantage of the spousal benefit. This allows one spouse to base his or her Social Security benefits on the other spouse’s career earnings rather than their own. It can be advantageous for spouses who have a limited work history or low career earnings. Even if you were recently married, you can take advantage of this strategy.

If you are divorced, you can take advantage of the spousal benefit as well. Assuming you were married for at least 10 years and have not remarried, your ex-spouse’s career earnings can be the basis for filing spousal benefits. Filing for a spousal benefit won’t impact his or her benefit in any way.

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