How To Maximize Social Security Benefits. Those born between 1943 and 1954 will get their “primary insurance amount” at age 66, which is their full retirement age. You can claim benefits as early as age 62, but your monthly check will be cut by 25% for the rest of your life. For every month you wait beyond 62, your benefit will increase by a fraction of a percent.
If you claim at age 64, for instance, you will receive 86.7% of your primary insurance amount.
For each year you delay claiming between 66 and 70, you’ll get a delayed credit of 8%, plus cost-of-living adjustments. “Having a larger income stream of that sort is extremely valuable,” says Rick Miller, a certified financial planner with Sensible Financial, in Waltham, Mass. Miller usually recommends that his clients delay to take advantage of this income stream of inflation-adjusted lifetime benefits.
A lower-earning spouse can claim a benefit based on his or her work record at 62. Or the spouse can claim a “spousal” benefit, as long as the other spouse has started to collect benefits. If the lower earner is at full retirement age, the spousal benefit is 50% of the higher earner’s primary insurance amount.
But the spousal benefit will be reduced if the lower earner collects the benefit before reaching full retirement age. If the lower-earning spouse first claims a benefit based on his or her earnings and later “steps up” to a spousal benefit, the spousal benefit will be reduced as well.
Many financial planners and academic researchers are urging seniors to focus on Social Security as longevity insurance — that is, a benefit that will provide you income in your old age — instead of as a source of immediate cash flow. “People underestimate the future value of that benefit,” says Clarissa Hobson, a certified financial planner for Carnick and Co., in Colorado Springs, Colo.
One way to look at the value of delaying benefits is to compare Social Security to the cost of buying the same amount of guaranteed income in the private market. Let’s say a 62-year-old Virginia man would receive $1,125 a month if he claimed at age 62, but $1,980 a month if he waited until 70. That’s a difference of $855 a month in benefits.
If this man claimed benefits at 62 and wanted to buy an extra $855 in guaranteed income at 70, he’d have to spend $116,660 for an immediate income annuity. And that’s without an inflation adjustment or a 100% survivor benefit.
Delaying makes particular sense if you have a pension, says Jonathan Blumenthal, senior vice-president at Peak Capital Investment Services, in Dallas. In that case, your pension, which is probably not adjusted for inflation, will cover expenses in early retirement. Later your Social Security benefit’s cost-of-living adjustments will become an inflation hedge.
It also makes sense to delay if your income will spike in those last years of work. Your benefit is calculated based on your top 35 years of earnings. Any years with no earnings will factor in at zero and will be averaged into the calculation.