The majority of seniors depend on Social Security for at least half of their income. Given its importance to your budget, it’s critical to get the biggest benefit that you’re entitled to. Most seniors don’t know how, and that lack of knowledge can mean years of low benefit checks, penny pinching, and exhausting retirement savings far faster than you planned. Here are four key things you need to know:
How many years of your highest earnings does Social Security use for determining benefits? It’s not five, like many people think. Social Security benefits are determined by the 35 years of your highest earnings. If your work record has less than 35 years, or there were breaks in your work record, or if your earnings were low at first, but are now higher, consider continuing to work, to get in more years of higher earnings. The higher earnings will help boost your initial retirement benefit. Even if you’ve already started benefits, when you continue to work, Social Security reviews your record each year. If your latest year of earnings turns out to be one of your highest years, your benefit will be recalculated and you will receive any increase due. A higher benefit will also mean bigger annual cost-of-living adjustments during your retirement.
What is the earliest age to claim benefits in order to get the maximum? If you said age 66, today’s full retirement age, you’re shortchanging your benefit by 32%. At age 70 you’ll get the biggest benefit you’re entitled to. For example if your full retirement age is 66, and you’re due a monthly benefit of $1,000, you’ll get $1,320 if you delay until age 70. That’s because of the “delayed retirement credit.” If you were born in 1943 or thereafter, your benefit will be boosted 8% for every year you delay past your full retirement age.
Are you eligible for a spouse (or divorced spouse) benefit as well as benefits based on your work record? You may be eligible not only for a benefit based on your own work record, but also that of a spouse or a divorced spouse. If you meet the eligibility requirements, you may be able to boost your benefits by starting first with a spousal benefit while you delay starting benefits based on your own record, and then switch when you reach age 70. CAUTION: This strategy works ONLY when you have already reached your own full retirement age. Generally a spouse or divorced spouse benefit pays 50 percent of what your spouse is entitled to, and if you take it when you first become eligible at age 62, it would be reduced. In addition, opting to take a spousal benefit early would also reduce your own retirement benefit later. But if you wait until you are at full retirement age, and your spouse (or divorced spouse) is receiving Social Security benefits, you can file and receive unreduced spouse benefits on your spouse’s Social Security record. Meanwhile a retirement benefit based on your own account will grow 8% a year until age 70. At that age you should switch and file for your maximum benefit based on your own work record.
What is the earliest age to claim widows or widowers benefits and get the maximum? If you said full retirement age, this time you’re right. A widow or widower at full retirement age or older generally receives 100 percent of the amount the spouse received. That said, if the deceased spouse received a reduced retirement benefit because of starting the benefit at less than full retirement age, then the widow’s benefit would generally be equal to what the decedent would receive if still living. Survivors can start benefits younger than that but doing so will substantially cut into the benefits you’re hoping to depend on. In planning your retirement or to maximize the benefits you already have, the Social Security website has more information and online calculators that help you estimate benefits. See the Social Security Administration Publication When to Start Receiving Retirement Benefits, No. 05-10147, ICN480136, July 2008.