We’re almost there. Extended returns are due Friday, October 15th (for most – saving certain federally declared disaster areas). So, bear with us a little this week as we handle a bunch of last-minute things for the last-minute people.
But today, I thought I’d take up a different topic.
Monthly benefits from Social Security used to join pensions and savings as the three legs of the stool that could keep you chugging along in retirement.
Well, for most of us, pensions have gone the way of the dodo bird. Savings are great – but how do you know you’ve socked enough away?
Maximizing Social Security benefits is more important than ever, even if you’re probably going to wind up getting around 20 grand in benefits a year (the average).
Some people get more.
Let’s make you one of them.
How Retirees Can Maximize Social Security Benefits
“Old age is always fifteen years older than I am.” – Oliver Wendell Holmes
Okay retirees (or soon to be), here we go…
To qualify for benefits, you had to have paid into Social Security for at least 10 years. The feds calculate your benefits – your primary insurance amount, or PIA – using numbers from your 35 best-earning years of work in which you paid into Social Security. (The feds adjust for inflation.)
Maximizing Social Security Tip #1: Hold on until you’ve reached FRA
If you’re 65 and you’ve had 33 straight years of making good money and that will continue, hang in another two years. It’ll increase your monthly benefit and maybe get you closer to …
Your full retirement age: This is your “FRA” or “Normal Retirement Age” and it basically means the age when you can start taking benefits as well as how big those benefits will be. The FRA is 65 for folks born in 1937 and before and inches up to 67 for those born in 1960 and later.
The FRA is HUGE when it comes to maximizing your Social Security bucks.
Say you can’t wait and you grab your Social Security benefits the second you turn 62. Sure, you can take benefits then – but depending on the numbers you can lose almost a third of the benefit you’d get at your FRA.
Wait, there’s more: We mean that literally.
Start taking benefits after your FRA and you could pocket up to 8% extra in benefits for every year you wait until you turn 70. These are your delayed retirement credits, and they’re gold for your golden years.
(Social Security benefits do automatically go up every year, more or less, due to the cost-of-living adjustment, or COLA. Next year it’s supposed to be big, so stay tuned.)
What if you want the money now? Maybe you’ve got a family history of dying young and you’re already not feeling so hot. It happens – and if you do claim benefits early and then have filer’s regret, you have 12 whole months to cancel.
But, if you can, wait to claim.
Maximizing Social Security Tip #2: Earn a paycheck and social security too
What if you want to keep working and still take Social Security?
A lot of people do it without waving bye-bye to benefits. Again, the big number is your FRA.
Generally, you’ll give up a buck in benefits for every two or three dollars you take in over Social Security’s earnings test exempt amount. The earlier you’ve claimed benefits and kept working before your FRA, the pricier this exemption becomes.
When you do reach your FRA (again, study that chart…), Social Security will recalculate your benefits to take into account benefits you lost to the test.
If you’ve hit your FRA, go nuts – you can earn as much as you want and it won’t ding your benefits.
Maximize Social Security Tip #3: Capitalize on wedded bliss
Time isn’t your only tool for juicing Social Security benefits. Check out your spouse.
If you’ve hit your FRA, you might get up to half of the benefit your spouse is entitled to at their FRA even though you’ve never worked. These are “spousal benefits” and they’re a great way to bump up benefits for a couple.
It wouldn’t be the federal government if conditions didn’t apply:
- You can collect spousal benefits only after your working spouse has claimed their own benefits. (There are exceptions, but not many – check with us).
- Your spousal benefits will depend on your and your spouse’s age and work history, and if you’re divorced you had to have been married to the spouse in question for at least 10 years.
- If you’re a widow or widower who is at least 60 (50 if you’re disabled) you can get up to 100% of your deceased spouse’s benefits if you were married at least nine months and don’t remarry too soon.
There are a lot of other ways to play spousal and survivor benefits – including claiming spousal benefits while delaying your own or receiving benefits if you’re caring for a child. You can get a general idea of what your spouse is worth here (at least in terms of Social Security…).
Social Security isn’t easy — but you can max your earnings in many ways (kids can qualify, for instance). Give us a buzz any time to talk about it, especially as it relates to your taxes…
Hang in there, out there,
Emelia Mensa EA, CPA