How to Maximize Your Social Security Benefits
About 3.6-million Americans will turn 62 next year. That's the age that you are first eligible for Social Security, and more than 40 percent of them are likely to claim benefits right away. But in doing so, they will collect the smallest payment they're entitled to for the rest of their lives. It is (with only a few exceptions) an irreversible decision. The amount of your first check, plus annual cost-of-living-adjustments to account for inflation, will be the same for the rest of your life.
The good news is that there is no "wrong" answer here. Whatever you decide, you will get guaranteed payments from Uncle Sam for as long as you live. However, you may want to maximize that amount without making undo sacrifices along the way.
Eligibility and Delay
First, let's look at eligibility: "full retirement age" is 66 for people born between 1943 and 1954, but you can claim Social Security benefits beginning at age 62, even though financial advisers warn that taking your benefits then comes with a substantial penalty. Let's say you're due to collect $1,000 a month at age 66. That amount would be reduced to $750 -- a 25 percent penalty -- if you elect to collect as soon as you're eligible. Each year you wait up until 70, the amount goes up. (By the way, full retirement age goes up by two months a year for anyone born after 1954, until it tops out at age 67 for people born in 1960 or after.) The figures in this case:
|Age||Monthly Social Security payment|
Financial advisers generally say that if you are in reasonably good health and can afford to wait, you should delay starting to collect for as long as possible -- at least until you reach full retirement age, and up the 70-year age limit, if possible. If you delay past full retirement age, you get an additional 8 percent a year. That's a guaranteed investment return that's awfully hard to match. By comparison, a 10-year Treasury note pays just 2.3 percent.
The Break-Even Point
The big question for many people is trying to figure out the"break-even point: When do the bigger checks make up for the years you did not collect checks at all? The Social Security Administration says you'll get the same total payment no matter when you start to collect, if you live to your average life expectancy. For someone who is 62 right now, that average is 86.3 years for a woman and 83.8 years for a man. If you don't make it to average, starting benefits earlier would have been more lucrative, but for each month you live beyond average, delaying benefits to get a bigger check means more money over your lifetime. And for the growing number of people who live well into their 90s, it could mean thousands of dollars more.
However, Tom Margenau, a syndicated columnist who spent 32 years at the Social Security Administration, takes a contrarian view. "My wife and I took our benefits early, at 62," said Margenau. "I may be financially ahead in the long run if I waited, but we've been having a great time spending our Social Security benefits and not worrying a whit about it."
He maintains that you're gambling a bit too much with the your benefits by waiting until 70 to begin collecting. "Do you want that money in your mid-80s or do you want it in your 60s?" he asks -- and then answers: "I've never heard from an 85-year-old person who said 'I made it. I beat the system.' " He notes a lot of people can't wait until age 66 -- either because of their health concerns or because they need the money to survive.
Even More Choices
Meanwhile, married couples have more options to consider than singles. Not only are you making a decision for yourself, but you have the option to think about your spouse who may survive you. Many married couples stagger when they begin to collect. The person with the larger payment waits longer, which entitles the surviving spouse to collect the larger benefit for the rest of his or her life.
There is no one-size-fits-all solution. You have to do the math and consult a financial adviser if you can. Also, go online and search for "Social Security calculator" so that you can play with the various scenarios.