When it comes to maximizing Social Security benefits, it’s all about timing.
“If you look at a married couple, there are 81 different strategies on how to claim Social Security,” says David Richmond, founder of Richmond Brothers. “A lot of times people don’t know their options.”
Filing too early for Social Security can mean getting a smaller check and potentially leaving thousands of dollars on the table, while waiting until Full Retirement Age (FRA) can maximize monthly payments.
Social Security benefits are designed to supplement retirement income, but too often people rely on these benefits as their only cash flow in retirement.
“Most clients assume they should take it right away at 62 and many times that’s not the best way to do it,” says Richmond. “Social Security went from a safety net to a primary source of income, and that’s not what the program was designed for.”
To determine when to start collecting benefits, financial experts say you must identify your FRA, which is when you can collect Social Security benefits without penalties. The Social Security website can help calculate this number.
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Workers can start collecting at age 62, but doing that could result in as much of a 30% reduction in benefits.
David Hefty, chief executive of Hefty Wealth Partners, says people also need to determine their primary insurance amount (PIA)—the monthly payout from Social Security.
“Your PIA is based on 35 years of your highest earnings. If the end of your career has the highest years, you are doing a good job of increasing your Social Security check,” he says.
Knowing how much to can expect each month can help determine when to start collecting.
If the benefits aren’t crucial to making ends meet, experts suggest waiting until age 70 to start drawing benefits to maximize check size. Every year past FRA until 70 earns a delayed retirement credit. For example, those born in 1943 or later will get an 8% credit each year collection is delayed, according to the government.
Some people start drawing their benefits as soon as possible and invest it in hopes of making a greater return, but experts caution against this.
“If you wait to 70 you’re guaranteed a roughly 8% rate of return,” says Richmond. “In today’s world, what’s growing at 8% guaranteed?”
The decision for single senior citizens on when to collect boils down to whether they need the funds to make ends meet, but for married people, it’s a little more complicated.
According to Hefty, two common strategies for married people to get the most from Social Security is the “file and suspend” and “double dip” strategies. Both strategies are only for couples that have other financial means outside Social Security.
The file and suspend strategy helps spouses with a large difference in the size of their benefits, and involves having the person with less benefits filing at 62 while the other spouse can file for benefits and then suspend them. This allows the person who started collecting at age 62 to also get 50% of the spouse’s Social Security benefit.
The spouse who delayed gets to maximize the amount he or she will get because each year Social Security isn’t collected earns the delayed retirement credit. This strategy enables the couple to start getting some Social Security at age 62 while still getting the most out of the other person’s benefits.
The double dip strategy, which is ideal for couples set to get similar benefits, includes taking the spousal benefit and regular benefit at different times. Even if one person’s benefit is less, if a couple can live off that, they will end up getting more the longer they wait to collect.
“If you don’t need your social security then ideally you should delay it,” says Hefty.