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Figuring out when to apply for Social Security isn't as complicated as unraveling the human genome. It just feels that way. That's because there are numerous strategies that, used to the best advantage, could increase your lifetime benefits by tens or even hundreds of thousands of dollars.
First, the basics. The maximum benefit for someone retiring at full retirement age in 2015 (66 for those born in 1943 through 1954) is $2,663 a month, or $31,956 a year. If each spouse in a married couple qualified for the maximum, they would receive nearly $64,000 a year. And benefits are automatically adjusted each year to keep up with inflation. (For 2015, the cost-of-living hike is 1.7%.)
You are eligible for benefits as long as you have worked at least 10 years in jobs or self-employment covered by Social Security. Your personal benefit will be based on two main variables: your earnings in the 35 highest-paid years of your career and your age when you start receiving your benefits. You can sign up for Social Security as early as age 62, but your benefit will be cut by 25% to 30% compared with what you'd receive at full retirement age. For people born after 1954, full retirement age gradually rises; for those born in 1960 and later, it's age 67. The later your full retirement age, the bigger the hit if you claim benefits at 62. If you wait to claim Social Security until after your full retirement age, you'll be rewarded with delayed-retirement benefits that boost your payout by 8% a year up to age 70.
The third variable in your claiming strategy is your marital status. Married couples have an arsenal of extra strategies that can boost benefits, and they don't necessarily end with divorce or the death of a spouse.
One other thing: To select the strategy that's right for you, you must give serious thought to some difficult and sobering questions, such as how long you think you'll live. The longer you live, the longer you're expected to live, and life expectancies have been gradually increasing. The latest government statistics show that men alive at age 65 are expected to live to age 82.9; women of the same age are expected to live to 85.5.
Claiming Social Security at age 62 makes sense if you think you won't live very long. But if you're healthy and have a family history of longevity (especially on your mother's side), it's a reasonable bet that the bigger benefits you will earn by delaying will pay off handsomely.
Best Social Security Strategies for Singles
Considering all the ways couples can boost their benefits, you may feel forsaken by the system if you're single. But although you have fewer options than your married friends, you can still take steps to increase your lifetime benefits.
Single retirees who never married don't need to concern themselves with survivor benefits -- benefits will end when they do. That gives single beneficiaries a less compelling reason to postpone claiming benefits after full retirement age, says Marc Kiner, co-founder of Premier Social Security Consulting in Sharonville, Ohio. But suppose you're healthy and want to postpone taking benefits so you can earn delayed-retirement credits. You should still file at 66 and ask Social Security to suspend your benefits.
Here's why: Ordinarily, Social Security will pay no more than six months' worth of benefits retroactively (and it won't pay any retroactive benefits for months before you've reached full retirement age.) But if you file and suspend at age 66, you're eligible to collect all of the benefits that accumulate after you file your claim. That could provide a significant cash reserve for unexpected expenses, such as a catastrophic illness or long-term care.
This strategy also reduces the risk that you'll die before you've had an opportunity to take advantage of delayed credits, says William Reichenstein, professor of finance at Baylor University and a principal with consulting firm Social Security Solutions. Suppose a single woman is eligible for full retirement benefits of $2,500 a month at age 66 but decides to delay taking benefits until age 70. At age 68 1/2, she is diagnosed with cancer and told she has two years to live. If she had filed and suspended her benefits at age 66, she would be eligible for 30 months of retroactive benefits, for a total of $75,000. (Kiplinger has partnered with Social Security Solutions to offer a tool to uncover the most advantageous time to start collecting your benefits; visit for details.)
Best Social Security Strategies for Married Couples
Married beneficiaries can claim benefits based on their own earnings record or choose to receive up to 50% of the amount for which their spouse is eligible at full retirement age. If the spouse claiming a spousal benefit hasn't reached full retirement age, that benefit will be less than 50%. This benefit provides an important safety net for mothers (or fathers) who stayed out of the workforce for long periods to care for their children. However, even dual-career couples can take advantage of spousal benefits to increase their lifetime payments.
File and suspend. Suppose you're the higher earner and want to maximize benefits by waiting until age 70 to begin receiving them. Also suppose your spouse will receive higher payments with a spousal benefit rather than with benefits based on her own earnings record. However, she can't collect spousal benefits until you file for your own.
Here's how to get around this conundrum: Once you reach full retirement age, file for your own benefit and then ask Social Security to suspend it. You'll continue to earn delayed-retirement credits until you elect to start receiving benefits. Meanwhile, your spouse can receive spousal benefits as long as she's at least 62. If she's younger than full retirement age, her spousal benefit will be less than 50% of yours.
Restricting an application. Say you're the higher-earning spouse and you have hit full retirement age, but you'd prefer to delay taking Social Security until you reach age 70 to maximize your own benefit and survivor benefits. While you're waiting, you can bring in extra by applying for a spousal benefit for yourself.
To execute this strategy, the lower-earning spouse claims her own benefit first, then the higher earner files for benefits based on the lower-earning spouse's earnings. The higher earner collects spousal benefits while his own benefit continues to grow. The higher earner gets 50% of the spouse's full-retirement-age benefit even if she's not yet 66. The higher earner can switch to his own benefit at age 70 (or earlier). His spouse can then switch to a spousal benefit based on what he was entitled to receive at full retirement age.
To use this strategy, the higher earner must be at least full retirement age. Otherwise, Social Security will automatically give that spouse the highest benefit he's entitled to receive, which will probably be based on his earnings. Consider using this strategy if one spouse's benefit at full retirement age is higher, but not so much higher that the lower-earning spouse would be better off with spousal benefits.
A combo strategy. What about couples with similar lifetime earnings? If you both expect to live a long time, you could get the most out of both of your benefits by waiting until age 70 to apply. But unless both of you plan to work until age 70, that strategy could force you to take larger withdrawals from your savings than you're comfortable with. Here's an alternative that combines both the "file and suspend" and "restrict an application" strategies.
When one spouse -- let's say the wife -- reaches full retirement age, she files for benefits and asks to have them suspended. The husband then files a restricted application for spousal benefits. Doing so enables him to receive spousal benefits from 66 to 70, providing a stream of income until both reach age 70. At 70, the husband switches to his own benefit and the wife ends suspension of hers. Because both spouses waited until age 70 to claim their benefits, they will have accrued the maximum in delayed-retirement credits.
Best Social Security Strategies If You're Divorced
Even if you haven't spoken to your ex for years, you may be eligible for benefits based on his or her earnings record. If you left the workforce to care for children or aging parents, or simply earned a lot less than your former spouse, this provision could dramatically bump up your benefits.
In order to claim either spousal or survivor benefits, you must have been married for at least 10 years and not be entitled to a higher benefit based on your own record. In addition, you must be at least 62 and unmarried. You'll lose the spousal benefit if you remarry, although you can reapply if you get divorced again or your second spouse dies.
You can collect spousal benefits even if your ex hasn't applied for benefits, as long as he or she is at least 62 and you've been divorced for at least two years. (You don't even have to tell your ex that you're applying for benefits based on his or her record.) In addition, your spousal benefits will have no effect on the benefits your ex (or your ex's new husband or wife) receives. You will, however, need to provide the Social Security Administration with a copy of your divorce decree, and it's helpful to have your ex's Social Security number, too.
As is the case with other benefits, you can increase your lifetime benefits by delaying your claim. If you wait until you reach full retirement age, you'll be eligible for 50% of your ex's benefits at his or her full retirement age. You can apply earlier, but your benefits will be reduced by between 7% and 8% for each year before your full retirement age that you claim.
Divorced spouses who have their own work history can take advantage of the "restricting an application" strategy used by married couples -- that is, after you reach full retirement age, claim 50% of your ex's benefits, based on your former spouse's earnings. This will enable your own benefits to earn the delayed-retirement credit. When you turn 70, you can switch back to your own, now-larger benefits. Again, this strategy will have no impact on your ex's benefits.
Divorced spouses are also eligible for survivor benefits, as long as the marriage lasted 10 years or more. If your ex dies, you're eligible for 100% of his or her payout. Remarriage won't affect your eligibility as long as you're at least 60 (or age 50, if you're totally disabled). You can switch back to your own benefits at 70 (or earlier) if that would result in a larger monthly payment, Kiner says.
Social Security Strategies If You're Widowed
You're eligible for a survivor benefit based on your deceased spouse's earnings. You can claim this benefit as early as age 60, or 50 if you're totally disabled. The amount is based on your late spouse's benefit when he or she died. If your spouse died before claiming Social Security, the benefit will be based on 100% of the amount due at your late spouse's full retirement age.
Most widows receive a higher payment by claiming their husband's monthly benefit instead of their own, according to the Center for Retirement Research at Boston College. And the age a husband chooses to start collecting his own benefit can have a significant impact on the widow's ultimate survivor benefit. Just as the husband's payout grows 76% by delaying from age 62 to age 70, so does the widow's survivor benefit. "I don't think there's enough emphasis on how important that survivor benefit is, especially for women, because women tend to live longer than men," says Judith Ward, a certified financial planner for T. Rowe Price.
In order for you to receive 100% of your late spouse's benefit, you must wait until your full retirement age to claim it. Otherwise, it will be reduced by a certain amount for each month you file your claim before your full retirement age. Remarriage won't affect survivor benefits as long as you're 60 or older when you remarry.
Don't ignore your own benefits, though. If you expect to live a long time, it might make sense to take survivor benefits, even if they're smaller than your own, so your own benefits can continue to grow. Once you reach age 70, you can switch to your own benefit, which will have been enhanced by the delayed-retirement credits.
Culled from Kiplinger in yahoo finance
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