First, Let’s Look at How Social Security Benefits Work.
Before we move on to my tips for maximizing Social Security benefits, here’s a quick primer on how the system works.
To become eligible for benefits, you need to earn what’s referred to as 40 “credits.” A credit is essentially each quarter per year worked, so you can earn 4 credits per year provided that you earn a specified minimum amount adjusted regularly by the Social Security Administration (SSA). This equates to a 10-year work history, 4 quarters per year, to become fully insured.
Social Security benefits are calculated based on your earnings history. The highest 35 years are used in this calculation. If you worked more then 35 years only the highest earning years will count. For those who worked less then 35 years those missing years are replaced with zeros. This is how the Primary Insurance Amount (PIA) is determined. It is essential to review your Social Security Statement regularly at SSA.Gov to verify your work history is accurate. Mistakes can happen. If an error is discovered, there is a procedure for you to address discrepancies. Refer to this publication by the SSA: https://www.ssa.gov/pubs/EN-05-10081.pdf.
When Can You Claim Benefits?
You can claim social security benefits as early as age 62, which is when you first become eligible. This benefit is reduced by roughly 25% of what you would receive at Full Retirement Age (FRA), and is also subject to an earnings test. For those who claim early, for every $2 you earn over the earnings test, $1 of benefits will be withheld. The amount withheld is reduced when you reach Full Retirement Age, when 1$ is withheld for every $3 earned over the threshold amount.
For most people, Full Retirement Age happens from age 66 to 67 depending on the year you where born. Upon FRA, you can receive your full benefit, unreduced.
4 of My Top-of-Mind Social Security Benefits Tips:
- Those who delay receiving benefits after Full Retirement Age can receive an annual increase of 8% per year for each year benefits are delayed until age 70. This can amount to a significant increase in benefits received over the course of a long retirement. For most this seems an obvious way to maximize benefits, however that is not always the case, and your individual situation should be analyzed.
- Spouses who have been married at least one year to a “fully insured” Social Security recipient have the option between claiming a 50% spousal benefit at full retirement age OR their own Primary Insurance Amount (PIA) full monthly benefit, whichever is greater. This is an excellent benefit for those who stayed out of the full-time workforce to raise a family and/or work part-time.
- A divorced person may be able to receive spousal benefits based on an ex-spouse’s work record, provided you were married 10 years and you meet other requirements.
- The key to maximizing benefits for a married couple is to coordinate the two benefits. There are dozens of scenarios based on your respective ages, earning records, and life expectancies. One interesting example: if the lower earning spouse’s Primary Insurance Amount (PIA) full monthly benefit is more than 50% of the higher earning spouse, both spouses should probably delay to age 70 to receive maximum benefits. This would be considered optimal for couples with average or longer than average life expectancies.
The potential return on maximizing your benefits is well worth having our team analyze your best course of action. There are myriad scenarios to consider, depending on your distinct situation.
For more on maximizing Social Security benefits, watch this brief and informative video.