You may have heard that the Social Security system is broken. In fact, the trustees of the system have been reporting that the social security trust fund will be depleted by the year 2034 and the system will only be able to payout 79 percent of the promised benefit in the future.*
Because social security is such an important piece of the retirement puzzle, Carolina Wealth Management makes a concerted effort to understanding its intricacies. This allows us to help clients navigate the process and, more importantly, to understand the best strategies for maximizing the benefits our clients receive.
Currently, the total income for the social security system comes from three sources; payroll tax $874 billion, taxation of benefits $38 billion and interest income $85 billion.*
As the depletion of the trust fund continues, the interest income should continue decrease over time. As this occurs, either changes to the system and / or changes to recipient filing strategies will be necessary.
Until the changes are made it’s important to help you get the most out of your social security benefits under current law. Below are a few tips to help maximize your monthly benefit.
- Delay Collecting Your Benefits
Technically, you can begin receiving benefits as early as age 62, and many people rush to collect their Social Security benefits. This can sometimes be a mistake because your benefits will be reduced significantly. Additionally, if you are still working collecting your benefit can lead to additional taxes that otherwise would not apply. Below are the reductions in benefit amounts by age when starting to receive benefits. And the reduction isn’t temporary. It’s permanent.
- 62 is about 30 percent
- 63 is about 25 percent
- 64 is about 20 percent
- 65 is about 13.3 percent
- 66 is about 6.7 percent*
If possible, waiting until your “full retirement age” is probably a better option—it means you won’t face any reduction. What is your “full retirement age?” It’s the age at which a person may first become entitled to “full” or “unreduced” retirement benefits.**
66 and 2 months
66 and 4 months
66 and 6 months
66 and 8 months
66 and 10 months
The latest you can begin collecting benefits is at age 70, and there’s good reason to hold off until then if you can afford it. Benefit payments go up 8% for every year you wait after you reach your full retirement age up to age 70. In other words, the longer you can keep your hand out of the cookie jar, the more sweets you’ll eventually receive.
- Claim Spousal Benefits
This topic can be very intricate and is most likely better discussed on a case by case basis. However, it’s important that you are aware of the options. Another way to potentially maximize your Social Security is to claim a spousal benefit. Married individuals can claim Social Security based on either their personal earnings record (in other words, their own work history) or on their spouse’s earnings record. If a married individual chooses the latter, they would receive a maximum of 50% of their spouse’s benefit.
Why would someone choose to claim Social Security based on 50% of their spouse’s earnings record rather than their own? It’s simple: because you can claim whichever number is higher. Be aware, however, that you a spousal benefit cannot be claimed until your spouse has filed their own claim.
Similar to individual benefits, choosing to receive spousal benefits at age 62, will reduce your monthly benefit amount. See the chart below for how much the benefit could be reduced.
- 62 is about 67.5 percent
- 63 is about 65 percent
- 64 is about 62.5 percent
- 65 is about 58.3 percent
- 66 is about 54.2 percent
- 67 is 50 percent (the maximum benefit amount)
- Claim Survivor Benefits
Imagine a hypothetical couple, John and Mary. Let’s say that both claimed Social Security based on their own earnings records. Now let’s say that John dies of a heart attack, leaving Mary behind. Under certain circumstances, Mary can file to receive John’s benefit, or increase her own benefit to the same amount that John enjoyed, if John’s number is greater.
Whatever you do, remember: Social Security is a guaranteed stream of income, and should figure highly into your retirement plan. Don’t deny yourself the chance to earn more money for retirement!
**“Retirement Planner: Benefits By Year of Birth,” Social Security Administration. http://www.socialsecurity.gov/retire2/agereduction.htm
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