Most people view Social Security as a static benefit that you simply apply for and receive at a certain age. This is not the case though, and approaching it this way creates $25 billion in unclaimed benefits annually.
Married couples, divorced individuals and widows/widowers are those most likely to leave money on the table. Next up are the early retirees, who face a 30% reduction in monthly benefits when they claim benefits at 62. Of course not everyone can afford to wait until full retirement age due to health and financial concerns. But for those who have more stable situations there are several options to get more from their Social Security benefits.
Retirement age for retirees eligible for benefits is 66 or 67 depending on the year you were born. If you can hold off claiming benefits until this age you will enjoy larger monthly checks. But perhaps more important than a 30% increase in benefits is the ability to earn more while working on your own.
Claiming retirement at 62 can reduce your benefits depending on how much you earn through employment. For 2014, you lose $1 in benefits for every $2 you earn over the amount of $15,480. This earnings cap loosens in the year of your full retirement age to $1 in benefits for every $3 over $41,400 up to your retirement birthday. Waiting to claim until full retirement age eliminates the earnings cap and allows you to work or invest as much as you want and still draw full benefits.
Now for those who have other income streams to lean on, delaying benefits until after your full retirement age will increase them by an additional 8% every year up to age 70. So, if you wait until age 70 and your normal retirement age is 66; that would be 32% more income. And that total has the potential to grow even more through future cost-of-living adjustments.
One of the things that gets overlooked with these delayed benefit strategies is the fact that they also increase the benefit for your surviving spouse. When you opt to file at 62 you not only reduce the amount of your monthly benefits, but you also decrease survivor benefits for your spouse. So if you are married there are more incentives to avoid early retirement.
Another little-known way to maximize your Social Security benefits is using the “File and Suspend” option. This is best for situations where one spouse has no work history and you want to avoid reductions to the earner’s lifetime benefits. The concept is to claim spousal benefits now while waiting for the earner to reach full retirement age.
Here the earner files for benefits, which automatically activates the non-working spouse’s eligibility, and then suspends those benefits so they may accrue retirement credits through age 70. The non-working spouse goes on to collect their spousal benefits, which brings income into the household while preserving full benefits for the earner. This is just one of 8 filing strategies for married couples that I discuss in my Social Security Retirement Book.
These are just some of the ways to maximize Social Security retirement benefits. Generally speaking, single individuals have 3 strategies to increase benefits by as much as $150 a month or more, couples have 8 ways to optimize benefits by as much as $800 a month and widows/widowers can use 4 strategies to increase benefits by as much as $425 a month or more.