The ebbs and flows of the U.S. market are worrisome particularly to those approaching full retirement age (FRA). Today, most retirees must rely solely on meager savings and Social Security benefits to keep them upright through retirement. Securing one’s financial footing may seem like a game of chance these days, but knowing how to roll the dice by maximizing your Social Security (SS) benefits can improve your chances for winning a lucrative future. Here are a few strategies to consider.
What’s Mine, Is Yours.
File and suspend (a.k.a. “voluntary suspension” or “claim and suspend”) is a smart option for married couples who want to take advantage of spousal benefits and delayed retirement credits. Currently, the law states that a spouse cannot claim a spousal benefit until the main beneficiary files a claim. But, let’s say a married couple, John and Krista, has reached FRA at 66 years old. John’s ready to retire, but Krista wants to continue to work another 4 years. Krista’s monthly retirement benefit would be $2000 if she filed for retirement now, while John’s retirement benefit would be $800 a month. Once Krista files for retirement at 66, John can begin to collect $1000 a month, or one-half of his wife’s FRA benefit. Krista can immediately suspend her retirement claim to allow her benefits to grow from “delayed retirement benefits” while John continues to reap the benefits of married life. At age 70 John can flip to his own benefit if it has now grown to an amount greater than his spousal benefits.
Show Me the Money!
The lump-sum strategy is a savvy option for those who want to let their Social Security compound, but would also like a lump sum for a desired purpose. This strategy consists of waiting 6 months after reaching FRA to file a retirement claim, at the same time requesting 6-months of retroactive benefits to be paid as a lump sum. The resulting Social Security check would be based on the monthly amount you were entitled to at your FRA, 6 months prior to filing your claim—4% less than if you did not take the lump sum. You would have to report the full lump sum in the year it was received on your tax return and most likely report as income up to 85% of the lump sum.
The Surviving Spouse.
If you have suffered the loss of your spouse, look into your eligibility for survivor benefits. As the surviving spouse, you could choose to file for either a survivor benefit starting at age 60 or your own retirement benefit as soon as age 62. You could then switch to the benefit of either you or your deceased spouse with the better earnings record. If you had the higher earnings then you delay to age 70 and if the deceased spouse did you delay to full retirement age. You cannot claim both survivor benefits and your own worker benefit simultaneously. To maximize this benefit, the surviving spouse would begin taking the lesser of the two benefits ASAP, and then switch to the higher social security after reaching FRA or age 70. Keep in mind any Social Security Benefits received before Full Retirement Age would be subject to an earned income (income from working) penalty.
Maximizing your SS benefits may seem like playing roulette, but as the late Benjamin Franklin once said, “Diligence is the mother of good luck.” A professional Comprehensive Advisor should be able to assist you with sophisticated Social Security Maximization strategies.
Ryan Fox is the Gettysburg Director for the Financial Consulate, Inc. He can be reached at 334-1861, at firstname.lastname@example.org, or through financialconsulate.com/ryan-fox/. The Consulate is a fee only, NAPFA member financial advisory firm with salaried employees who accept no commissions