Social Security: You Have More Control Over It Than You Think
It's easy to just assume, as many people do, that whenever you retire, you'll start collecting Social Security and will make the best of things from there. Don't be so fatalistic, though. There are things you can do to control how and when you collect Social Security income, including how much you collect.
One of the biggest issues regarding Social Security is when to begin collecting it. If you were born in 1960 or later, your full retirement age, generally, is 67. You may begin collecting as early as age 62, though, but your benefits will be reduced. Start collecting at age 62, and you'll end up with 70% of your regular monthly benefit in each check. Start at age 65, and you'll receive 86.7% of it. That can look like a bum deal, but remember that you'll be collecting either 60 or 24 months' worth of payments by starting early.
Meanwhile, you might also put off starting to collect. For every year that you delay, up to age 70, your benefit will increase by 8%. That's a big deal, and can add up, turning a $1,000 payout beginning at 67 into more than $1,200 beginning at age 70. If you weigh an early age-62 payout with a late age-70 one, the later one can be a whopping 76% higher, making quite an impact on your retirement comfort.
Examine your situation closely
There's no best approach that suits everyone, so you need to assess your particular situation. For starters, think about longevity in your family. If your people tend to live very long lives, then delaying when you collect in order to maximize your benefit can pay off well -- and vice versa. If your health is poor, starting early can make sense.
Think strategically, too. It might seem that you just can't afford to put off collecting your Social Security benefit, but look at your big picture. Do you have an IRA or a 401(k) account? If so, you can begin withdrawing funds from it at age 59 1/2 (earlier if you become disabled), though with Roth varieties of these accounts, some or all of the money will need to have been in the account for at least five years. Thus, you might be able to retire a bit early and live off of these kinds of retirement accounts while delaying beginning your Social Security benefits. (Note that if you choose to delay, you'll probably still want to apply for Medicare a few months before you turn 65.)
Work and spouses
Think, too, about when you'll actually stop working, or will reduce your working hours. Working at or beyond your full retirement age will have no effect on your Social Security check, but working before that can reduce your benefits. There's a limit each year on how much you can earn, and for every two dollars beyond it that you earn, your Social Security benefit can be reduced by a dollar. (The reduction is one dollar for every three in the year that you reach full retirement age.) Thus, you need to think about whether it's best to keep working, and if so, how much to work.
Then there's your beloved spouse. If you have one, then you have more Social Security strategies available to you. My colleague Dan Caplinger has reviewed a bunch of them, such as the "restricted application" strategy, or the "file-and-suspend" strategy. With couples, it's often advantageous for the higher-earner to delay beginning Social Security until age 70. Being creative and proactive can maximize your total benefits.
Another good thing to know is that if you're reading this article and kicking yourself for having begun Social Security payments instead of delaying them, you can ask for a do-over. If you began collecting within the past year, you can pay back what you've collected first, and then enjoy fatter payouts later. Alternatively, you may be able to suspend payments and have your ultimate payout grow by 8% for every year that you delay beyond your suspension point.
A little digging into possible strategies can pay off big time, enhancing your golden years.
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