Are you approaching Social Security age? If so, you may be facing a difficult decision about when and how to file for benefits. It could be an important decision. If you’re like many retirees, Social Security will play a large role in your retirement funding strategy.
Your decision on when and how to file will likely be permanent. In most cases, your Social Security benefits cannot be altered or adjusted after you file and begin receiving benefits. While your payment may increase in the future because of cost-of-living adjustments, you likely will not have the opportunity to change your filing status.
Given the importance of your Social Security benefit amount and the impact it will have on your standard of living in retirement, it’s helpful to understand how your benefit is calculated.
The Social Security Administration considers a number of factors when it calculates your benefit, including your career earnings, your marital status and your age at the time you file for benefits.
You can use those three factors in your planning to maximize your benefit amount. Below are a few things to consider when planning your Social Security strategy:
Replace low-earning or no-earning years.
One of the most effective ways to increase your benefit is to work a few extra years. That’s especially true if you took a break in your career or if you had several years with low earnings.
Social Security bases your benefit on your career earnings, which is calculated with an average of your 35 highest-earning years. If you don’t have 35 years of earnings, however, your years with no income are simply counted as zeros in the calculation. That can bring down your average, as can low-earning years.
You may want to analyze your earnings history to determine which years are being used in the formula. If you earn a substantial amount in those extra years, the agency could replace your low-earnings or no-earnings years in the calculation, which would boost your average annual income and, subsequently, your benefit amount.
Delay your filing as long as possible.
Perhaps the easiest way to maximize your benefit is to wait to file. Generally, the longer you delay your filing, the higher your benefit will be. You are eligible to file for benefits at age 62. However, your full retirement age is likely 66 or 67. Full retirement age (FRA) is the age at which you can receive 100 percent of your benefit. If you file before your FRA, you may see your benefits greatly reduced.
There’s nothing saying you have to file at your FRA, though. In fact, your benefit could increase if you delay your filing past your FRA. Social Security offers an 8 percent benefit credit for each year past your FRA that your filing is delayed, up to age 70. For example, if your FRA is 66 and you delay filing for four years, to age 70, your benefit would increase a total of 32 percent, or 8 percent per year over four years.1
Take advantage of a change in marital status.
Your marital status is another big factor in your Social Security benefit calculation. If you were married recently or plan to get married before you file, your benefit could increase. Similarly, if you recently divorced and haven’t remarried, you may be eligible for strategies that could provide a higher benefit.
Married couples are able to take advantage of what’s called a spousal benefit. This allows one spouse to base his or her Social Security benefit off the other spouse’s career earnings rather than their own. It can be advantageous for spouses who have limited work history or low career earnings. You can take advantage of this strategy even if you were recently married.
You can also take advantage of the spousal benefit if you are divorced. Assuming you were married at least 10 years and have not remarried, you can file for spousal benefits based off your ex-spouse’s career earnings. Filing for a spousal benefit won’t impact his or her benefit in any way.
Ready to plan your Social Security maximization strategy? Let’s talk about it. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
The material is not intended to be legal or tax advice. The insurance agent can provide information, but not advice related to social security benefits. Clients should seek guidance from the Social Security Administration regarding their particular situation. The insurance agent may be able to identify potential retirement income gaps and may introduce insurance products, such as an annuity, as a potential solution. Social Security benefit payout rates can and will change at the sole discretion of the Social Security Administration. For more information, please consult a local Social Security Administration office, or visit www.ssa.gov
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