4 Considerations for Maximizing Your Social Security
Friday, April 06, 2012
What is the best strategy for taking Social Security benefits? The number of people in the country that depend on the program is staggering. Nine out of ten people age 65 and older receive Social Security benefits. For roughly one third of recipients, Social Security is 90% or more of their income. It’s a topic that everyone needs to pay attention to. If you’re early in your working career, Social Security should still be a part of your financial planning. For those near or at retirement, here are some things you have to consider in order to maximize what you receive:
Longevity
Your health and the longevity in your family has to come into play when making this decision. If you’re living life like a character on Mad Men, chances are you should start collecting benefits as soon as possible. In general, delaying benefits until age 70 means you have reach an age between 77 and 82 in order to break even, depending on your projected investment returns.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTMarital Status
If you’re married, you have some different options available to you. For a working couple, the lower earning spouse might elect to take benefits early, allowing the higher earning spouse to wait until age 70 to maximize their yearly payout. Another popular strategy for couples with one wage earner involves “Claiming and Suspending” benefits. For example, a wife who has reached full retirement could allow her husband to receive a spousal benefit now based on her earnings record by claiming and then immediately suspending her benefit. She would continue to accrue delayed retirement credit, which would in effect increase her monthly benefit and the survivor benefit for her husband.
Working Status
In 2012, if you take benefits early and make over $14,640 per year, Social Security will take back $1 for every $2 earned over the limit. This will continue until the year you reach full retirement age, when the threshold increases to $38,880 and Social Security only takes $1 for every $3 you earn until your birthday.
Currently, up to 85% of Social Security benefits may be taxable, depending on the person’s Adjusted Gross Income. There is no age forgiveness when it comes to paying taxes on benefits, so it’s extremely important to keep income thresholds in mind to minimize tax exposure.
Financial Condition
The reason many people take benefits early is that they haven’t accumulated money elsewhere in order to live. For those that have the means to wait, they’ll earn roughly 8% on their yearly benefit each year they delay receiving benefits until age 70. In order to delay taking benefits, you’ll want to calculate the income available from retirement accounts, investment assets, and pensions.
Remember, Social Security is a return of your working year contributions. Instead of grabbing the money as soon as it’s made available to you, take the time to examine all of your options. To get a rough estimate, go to AARP’s free calculator available at www.aarp.org.
Dan Forbes is a regular contributor on business financial issues. His office is in Providence, RI. He leads the firm Forbes Financial Planning and can be reached at [email protected]