If you are approaching the age where it’s time to think about applying for Social Security benefits, some little-known strategies could boost your household’s benefits. Benefits are based on a retiree's Social Security earnings record and age at the time the benefit amount is established.
Because everyone’s situation is different and because there are so many Social Security claiming strategies, the ideal strategy for you might not work for your neighbor, and vice versa. However, one of the following six options might enhance your household’s Social Security retirement benefits, whether you live alone or still have minor children at home.
- The ideal strategy for you might not work for your neighbor, and vice versa.
- Social Security representatives may give you incorrect advice that can cost you serious money.
- There are opportunities to increase your Social Security benefits later if you decide that you started claiming too early.
- Be proactive; the Social Security Administration doesn't inform people when they become eligible for specific benefits, such as those for divorced survivors, spouses, divorced spouses, and children.
- Use a high-quality calculator that offers greater personalization to search out the best strategy for you.
1. Don’t Take the SSA’s Claiming Advice at Face Value
Going straight to the source would seem like a great way to get accurate information about the best time to file for Social Security. But it’s not.
The Social Security Administration (SSA) representative you talk to on the phone or in person may be well intentioned when trying to answer your specific, individual questions about the best Social Security claiming strategy for your unique circumstances. However, because this person is often overworked and undertrained, they may give you incorrect advice that costs you tens of thousands of dollars over the course of your retirement.
If you discover the mistake later, you might not be able to correct it, even if you based your decision on faulty advice from the SSA. That’s the SSA’s own rule. And many claiming decisions are irreversible.
This tip comes from the bestselling book “Get What’s Yours: The Secrets to Maxing Out Your Social Security” by Laurence J. Kotlikoff, Philip Moeller, and Paul Solman, updated for new Social Security rules in 2016. Kotlikoff is an economist, while Moeller is an award-winning business journalist and Solman is a business and economics journalist. They know their stuff.
If you do ask the SSA for claiming advice, you’d be wise to consult with at least one financial advisor who specializes in retirement planning and read “Get What’s Yours” for a more complete picture of your options.
2. Start Over If You’ve Claimed Too Early
Here’s one opportunity to reverse a claiming decision you regret. If you’re within the first 12 months of claiming and you have enough cash available, you can withdraw your application and repay all the benefits you’ve received so far. If you do, “then it is like you never claimed in the first place,” says Arthur Prunier, a retirement income certified professional® instructor at the American College of Financial Services.
“Lots of people file for Social Security without fully understanding the consequences,” he explains. “For example, many people choose to claim Social Security before full retirement age, but later wish they had not done so.”
After repaying what you received, you can claim a tax refund or credit for any taxes you paid on those benefits.
3. Voluntarily Suspend Your Benefits
Another opportunity to stop receiving Social Security payments in order to boost your future benefits occurs once you’ve reached full retirement age. With this voluntary suspension strategy, however, you don’t need to repay the benefits you’ve already received.
Here’s an example Prunier provided to illustrate why you might want to voluntarily suspend your benefits after full retirement age.
Susan started receiving Social Security benefits at age 63; her full retirement age is 66, and her full monthly benefit is $1,000. But because she started receiving benefits 36 months early, her monthly benefit was reduced to $800.
At age 65, Susan decides it was a mistake to have started her benefits early. But more than 12 months have elapsed since starting benefits, so she can’t withdraw her application.
All is not lost. Susan can file to voluntarily suspend her benefits at age 66. For each month of suspension, Susan will gain 2/3% of monthly benefit increase. If she waits until age 70 to maximize her Social Security benefits, this claiming strategy would increase her monthly benefit by 2/3% for 48 months, or 32%. Her former monthly benefit of $800 would increase to $1,056.
During voluntary suspension, you will receive what the SSA calls “voluntary delayed retirement benefits,” Prunier said. When you apply to start receiving benefit payments again, you’ll receive a higher benefit that reflects the delayed credits.
4. Maximize Household Benefits
If you have a spouse or minor children, you need to consider how your claiming decision will affect them and how to maximize your household’s overall, long-term Social Security benefits, which might mean employing a different benefit strategy than the one you’d use to maximize your own benefit payment.
Your claiming decision affects family members: If you voluntarily suspend your own benefits after April 30, 2016, no one else may receive Social Security benefits based on your earnings record.
How else might you maximize your household’s Social Security benefits? The oft-heard advice to postpone claiming until age 70 if you can afford it may be unsuitable if you’re in your 60s and you still have children younger than 18 living with you—not uncommon in blended families. In this scenario, you might receive more benefits in the long run by claiming at a younger age so you can receive dependent benefits, as financial planner Michael Kitces explains on his blog.
The dependent child benefit is half of the claiming parent’s full retirement benefit, even if the parent claims early. The younger spouse may also be eligible for a spousal benefit. These additional benefits may offset the lower benefit the claiming parent will receive by filing early.
Factors that affect this decision include how many children are in the household, how long it will be until they turn 18 (or 19, if they are full-time students), the amount of the other spouse’s own benefit and the age gap between the parents (since survivors benefits will be permanently reduced by claiming early).
5. Know Every Benefit to Which You’re Entitled
The Social Security Administration doesn’t just pay retirement benefits directly to the worker who earned them. It also pays survivor benefits, divorced survivor benefits, spousal benefits, divorced spousal benefits, child benefits, and a few other types of benefits. But because Social Security doesn’t inform individuals when they become eligible for these benefits—the administration doesn’t necessarily have this knowledge—you could miss out on them if you aren’t proactive.
Here’s another example from Prunier: Because the survivor/widow/widower’s benefit and the worker’s benefit are treated as two separate benefits, individuals who lost their spouses before retirement may have the opportunity to receive the widow’s benefit first, then switch to their own worker’s benefit later, or vice versa.
“With a modest worker benefit and retirement at age 62, for example, one might take a reduced worker benefit at 62 and defer the larger widow’s benefit to full retirement age in order to get an unreduced benefit,” Prunier said. “Or, if one is still working and the worker benefit after deferral credits will exceed the survivor benefit, one can claim the survivor benefit at full retirement age and switch to the worker benefit at 70.”
However, Prunier also warns you should remember that for all “unusual” approaches to boosting Social Security benefits, significant restrictions or exceptions may apply. Anyone thinking about taking advantage of these approaches should always ask themselves:
- Do I understand what restrictions apply?
- Do I really fulfill all the requirements to take advantage of this approach?
- Might there be some unintended consequence of this approach?
6. Use a High-Quality Calculator
Retirement experts have recommended the following calculators as being much higher quality than the free ones offered by many personal finance and retirement websites because they allow for greater personalization:
In addition, for its combination of accuracy and ease of use, the authors of “Get What’s Yours” have found the best of Social Security’s several calculators to be this one.
The Bottom Line
Social Security benefits are an important part of any retirement plan. You’re entitled to them if you or your spouse have earned 40 credits by paying into the system for at least 10 years, so you should absolutely try to max out your payback within the law’s parameters.
Unfortunately, your options for maxing out your benefits are often poorly publicized by the Social Security Administration, and even asking an agency representative to assist you personally may result in subpar advice and lost benefits.
That’s why it’s essential to educate yourself about the available benefits and filing strategies and run through various scenarios with a financial planner and/or advanced Social Security calculator before actually filing. With this knowledge, you’ll be able to claim your benefits in the way that’s most likely to provide the maximum return for your household.