How to Maximize Social Security for Your Retirement

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By Ellen Chang

NEW YORK -- Investors who are ready to retire should start considering when they should begin claiming their Social Security.

Choosing the right time to begin claiming your Social Security will maximize the amount of money you will receive to supplement your retirement funds. The right strategy can lead to $100,000 or more in additional retirement income, said Wei-Yin Hu, director of financial research for Financial Engines, a Sunnyvale, California, registered investment adviser.

%VIRTUAL-pullquote-Deciding when to begin claiming Social Security benefits is one of the most important retirement planning decisions you can make, but it's not easy.%Determining the right strategy can be tricky and confusing especially if you are married, since there are over 8,000 ways a married couple can file for Social Security benefits. A recent study by Financial Engines found that most Americans overestimate their ability to make good Social Security claiming decisions and underestimate the complexity of deciding when to claim Social Security benefits.

"Deciding when to begin claiming Social Security benefits is one of the most important retirement planning decisions you can make, but it's not easy," he said.

Although many people begin claiming as soon as they reach age 62 or once they stop working, but most people will generally receive higher payments if they delay claiming, said Hu.

"Deferring the start date of your Social Security benefits can significantly increase the amount of payments. It's the best deal for households seeking more annual income in retirement," he said.

Although many Americans typically expect to retire at age 66, the brutal truth is that most retirees don't stay on the job nearly that long. A recent Gallup Poll found the average age among retirees is closer to 62.

If you wind up retiring early, delaying Social Security can help people receive more income down the road.

"This benefit is reduced by 5/9 of 1 percent per month up to the first 36 months and then 5/12 of 1 percent thereafter," said Stein Olavsrud, a certified financial planner with FBB Capital Partners in Bethesda, Maryland. "In addition, there are numerous variables that spouses can utilize in obtaining their Social Security benefit and they lean on their planner to walk them through the process so they understand the variables before claiming a greatly reduced lifetime benefit."

Spouses with a smaller difference in their ages have more options to choose from compared with couples with a larger age difference, said Fidelity in a blog post. The decision is important and has the potential to result in a significant amount of money in your pocket during retirement.

"When you start claiming Social Security benefits may or may not coincide with your last day of work," Fidelity said. "If you aren't working and still want to delay benefits, you need to consider how to cover your living expenses until your Social Security benefit kicks in. You may not be able to delay claiming if you need the income for everyday expenses."

If retiring at age 62 wasn't part of your plan and you are able to delay receiving your benefits, consider starting a small business or working part-time to pay for your expenses, said Melody Juge, managing director of Life Income Management in Flat Rock, North Carolina.

"An unexpected early retirement usually means the loss of a job," she said. "This can be a financially devastating situation if retirement funds are used too early since the growth of money happens over time. Most people are short in their retirement accumulations and the last ten years between 55 and 65 or 60 to 70 are more focused on putting money away that will need to last them 20 to 40 years."

By being creative, retirees won't be forced to dip into their retirement savings or take their Social Security benefits, Juge said.

"Having a disruption of consistent income at this time can also be psychologically devastating," she said. "Think in terms of a combination of a few things that will generate income and keep you busy, occupied and enjoying life while you look for full-time employment. You may surprise yourself and love your new income earning experiences."

Investors who stick to "goal-based investing" should be able to build up a decent nest egg for retirement and avoid tapping into their Social Security benefits before they are ready, said Bill Stone, chief investment strategist for PNC Wealth Management in Baltimore, Maryland.

"There is little doubt in the annals of behavioral finance that greed and envy, when it comes to financial decision making, can lead to poor outcomes," he said. "One must be mindful that there can be long periods when performance-based investing can look significantly more attractive. Despite the fact that individual assets are often volatile, we believe assets can be combined to effectively manage risk, enhancing the predictability of asset returns."

Despite the current market outcome, investors need to stay in the game so they can yield a good return for their retirement, said Zack Shepard, vice president of Matson Money, a Cincinnati, Ohio, investment management firm with $5.7 billion in assets.

"The three major rules of investing always apply be it a market high, market low or everything in between," he said. "Own equities, diversify globally and rebalance regularly. Don't chase performance, and don't panic when the market is down. Even if we are at a high, feel the fear and invest anyways."
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