Many people nearing retirement have many questions about Social Security benefits. Most people know that benefits can be claimed as early as age 62, but most are not aware that there are as many as 11 different claiming strategies that can increase their lifetime benefit significantly. Each individual’s unique circumstances determine how and why these strategies apply.
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The Social Security website provides a good calculator for estimating one’s benefit and has extensive information available. However, unless you know what you’re looking for, navigating the site can be a daunting task. It’s unrealistic to expect the local or national Social Security offices to help you find your way through these strategies and advise you as to which one will maximize your retirement dollars. Social Security employees are not allowed to give advice. Unless you know what questions to ask, you are not going to get very far.
Many may think, “Well, if I can’t ask the Social Security office, then I will ask my financial advisor. He/she should know.” While there is a possibility that he/she may know, most do not. Educating yourself about Social Security or finding someone who specializes in working with retirees and knows how to help you navigate your way through the Social Security strategies can help you add thousands of dollars to your retirement years.
For example, did you know, that once you hit your “full retirement age” or FRA (between 65-67) your benefit will increase by 8% each year plus inflation adjustments? Where else can you find a guaranteed increase on your money of 8% in today’s economy? Additionally, from 62 to 66/67, your benefit will increase by about 6.25% each year.
These are two examples of why waiting to trigger your benefit can be beneficial. But, what if you retire at 66 and need income before you are 70? Are you just out of luck? No! There are many strategies that may apply to your situation. However, it’s important to understand the rules. If you don’t do things right, you could miss out on a lot of additional money during retirement. Certain advantageous claiming strategies, especially those involving spousal benefits, don't become available until you've reached what's called full retirement age—anywhere from 65 to 67, depending on when you were born.
Let me give you a few examples of how some of the many Social Security claiming strategies could apply to you.
Restricted Spousal Strategy
John, age 62, wants to work until his FRA (Full Retirement Age) of 66 and then retire. His wife, Jane is 60 and will also retire at her FRA of 66. At age 66, John’s benefit would be $2,200/mo. Jane’s benefit at age 66 would be $1,800/mo. They are both in good health and believe they will live into their mid to late 80s. If they both live to be age 85 and they just take their standard benefit at age 66, their combined lifetime benefit (in today’s dollars – not accounting for any cost of living adjustments) would be $917,160.
However, if they use the “Restricted Spousal Strategy”, they can add an additional $60,421 to their total benefit. Here’s how: John would still claim his benefit at age 66. Jane, instead of claiming her full benefit, would claim a “restricted spousal” benefit at age 66. Then at age 70, Jane would claim her own full-deferred benefit. John and Jane’s combined benefit (with the same assumptions as above) would be $977,581 or $60,421 more. Not only will Jane receive a benefit starting at age 66, but it will allow her benefit to continue to grow by 8% each year until she triggers it at age 70. At 70, Jane’s benefit would then be $2,360/mo. Having Jane’s benefit grow and become the larger benefit will profit whichever spouse outlives the other because they will keep the larger of the two benefits when one of them passes away.
File and Suspend
Using the same example from above of John and Jane, let’s say that they have pensions that are more than enough to cover their monthly bills when they retire. So, they decide that they don’t need John’s Social Security until age 70. Like we did above, Jane will claim a “restricted spousal” benefit at age 66, but in order to do so, John will have to “file and suspend” his benefit at age 68 so that Jane can claim off of his benefit from 66 to 70. John and Jane will then both claim their full deferred benefits at age 70. By using this strategy their combined benefit would be $1,011,272 or $94,112 more than if they had both claimed at 66. Would you like to add $60,000 to $94,000 or more to your retirement years? This is the type of difference that can be made by knowing how to maximize your Social Security benefit. In a time where medical advances have increased life expectancy, fewer and fewer people retire with pensions, and our economic future seems more and more uncertain, maximizing one’s Social Security benefit becomes a crucial part of any retirement. Don’t overlook this important piece of the retirement puzzle as you begin to develop your plan!
Damon Roberts has helped hundreds of seniors put together comprehensive estate plans that have helped them grow and protect their estates. Damon founded Acute Financial in Mesa, Arizona in 2001. To contact Damon, call him at 480-620-6907 or email him at firstname.lastname@example.org