The difference between a good Social Security claiming strategy and a bad one can mean losing out on more than $1 million, one expert says.
“The no. 1 one thing that I want everyone to know: don’t take the decision lightly, Bill Meyer, founder and managing principal of Social Security Solutions, told FOX Business. “It’s the largest financial decision 99% of Americans make, bigger than your 401(k), bigger than equity in your house.”
The average annual Social Security payout as of 2015 for a 70-year-old was $15,216, and $12,552 for a 62-year-old.
How can you get into, or exceed, the top tier of claimants? By making smart decisions based on your financial circumstances.
On the verge of claiming?
If you have not yet claimed your Social Security benefits, there are multiple factors you should take into consideration when developing a plan. Most strategies are hard to change once chosen, so it’s not a decision that should be taken lightly.
“Do some work, run your numbers … The biggest misconception [people have] is that Social Security agents and the Social Security Administration will give them advice, and they don’t,” Meyer said. “Social Security does not have the tools to be able to help someone with what we call a claiming strategy.”
So what are the main considerations you should take into account? Every plan will be different based on individual circumstances, goals and lifespan.
Life expectancy is the “X factor” when it comes to developing a strategy because, on average, retirees tend to underestimate how long they will live, according to Meyer. It’s important to look at family history, your health and a whole host of considerations that could affect lifespan. These calculations will be crucial in determining which age is best for you to begin claiming Social Security.
One way to make sure you are covered for your entire retirement period is by using a strategy that prioritizes survivor benefits.
Meyer also said that if you have savings and can work a bit longer, you will be able to keep your benefits as high as possible.
If you have already claimed your benefits, there are still some ways to maximize and make your money last for a longer period of time.
While many people begin taking Social Security as early as possible, if you have a change in economic circumstances or otherwise figure out that you don’t necessarily need your benefits right away, you can suspend them.
Suspending is an option for those who have reached full retirement age but are not yet 70.
Each year you suspend, you get an additional 8% for as long as you live. So, for example, if you claim early and get about 75% of your benefits, then you suspend for a year, you will get an additional 8% tacked on for as long as you live: that could add up to as much as $50,000 for some people. It is important to note that you can turn your benefits back on only once.
Another way to maximize your life savings is by coordinating Social Security benefits with other forms of savings, such as an IRA, 401(k) or other taxable brokerage account.
If you tap your account or draw down in the wrong sequence, Meyer said, you can increase your Social Security taxes and end up with less money to live on. In fact, he said, Social Security taxes can extend as high as 40%.
A good strategy to avoid high Social Security taxes is to delay taking Social Security and to draw out of your IRA, or other savings account, first. Doing that allows you to tap more of your taxable stash, Meyer advised, adding it’s a particularly good strategy for those with less than $1 million in savings.