3 Smart Social Security Moves You Can Make in 2017

By Maurie Backman Markets Fool.com

Millions of Americans rely on Social Security to pay their bills in retirement. If you're looking to make the most of Social Security, here are three moves to make this year.

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1. Hold off on claiming benefits

If you were born in 1955 or earlier, you can start claiming Social Security in 2017, since eligibility begins at age 62. But the longer you wait to take benefits, the more money you'll get out of Social Security in retirement. Claiming benefits before reaching your full retirement age (which for today's older workers is 66, 67, or somewhere in between) will result in lower payments for the rest of your life, and the earlier you claim, the more you stand to lose. Specifically, for every year you collect Social Security early, you'll forego 6.67% of your benefits for up to three years, and then 5% of your benefits from that point on. This means that if you claim Social Security at 62 when your full retirement age is 67, you'll slash your benefits by 30%.

Even if you do reach your full retirement age in 2017, it still pays to hold off on benefits if you don't desperately need the money. For every year you delay Social Security, you'll get an 8% boost in benefits up until age 70, at which point the incentive runs out. If you have savings to tap, it often pays to dip in and let your benefit amount grow.

2. Work longer

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Your Social Security benefits are based on your top 35 years of earnings. Now you may not have 35 working years under your belt, especially if you took a break at one point to raise children or care for a family member. But remember that, for every year out of those 35 that you didn't work, you'll have $0 in income factored into your benefit equation. That's why working longer can be a strategic move. Not only will working longer shorten your retirement (thus extending your savings) and give you a chance to add to your nest egg, but it will also allow you to replace some of those earlier years when you didn't earn any money.

Even if you didn't spend any significant amount of time away from the workforce, working a few years longer as a senior could potentially increase your benefits. Most people earn more money later on in their careers than they do when they first start out. If that trend applies to you, you can replace some of your lower earning years with higher ones and boost your Social Security payments as a result.

3. Understand the role Social Security plays in your retirement strategy

Whether you're about to retire or are still a few years away, it's important to have reasonable expectations about Social Security and its role in your overall financial picture. According to the National Academy of Social Insurance, a good 65% of beneficiaries rely on Social Security for the majority of their income in retirement, and it's the sole source of income for nearly 25% of retirees 65 and older. The problem, however, is that Social Security isn't designed to sustain most seniors on its own. For the average worker, Social Security will replace about 40% of his or her pre-retirement income. Most people, however, need somewhere between 70% and 80% of their pre-retirement income to cover their living expenses once they stop working, which means that saving independently is the only way to bridge that particular gap.

While you can go online and estimate your Social Security benefits to get a sense of how much income to expect in retirement, you'll also need to examine your savings to see whether you'll have enough to get by once you leave the workforce. If your savings aren't sufficient, you may need to rethink your retirement plans or postpone retirement for a few years to accumulate extra cash. Anyone 50 or older today can put up to $6,500 a year into an IRA and $24,000 into a 401(k), so if your savings combined with Social Security aren't likely to cut it, it pays to push yourself to max out your contributions.

If working longer isn't an option, your next best bet is to consider a part-time job in retirement. This might mean consulting in your former field, finding a job in your neighborhood, or starting your own business. No matter which option you choose, don't make the mistake of relying too heavily on Social Security and coming up short as a result.

Before you claim Social Security or make the decision to stop working, examine your savings, finances, and goals to see how to maximize your benefits. A few strategic decisions today could set the stage for a far more financially comfortable retirement in the long run.

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