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Although Social Security is only one source of retirement income, it is an important source and few realize how those benefits can be maximized with a little planning. First, anyone can go to to get an estimate of their anticipated benefits. As of May 2011, paper statements of benefits are only mailed to those 60 and older so younger workers must sign up to receive annual statements via email.

Election of benefits either early or late is an important decision that requires some advanced planning. Age 62 is the earliest age a worker can collect benefits. Those born after 1960 must wait until age 67 to reach full retirement age under Social Security. However, taking Social Security at age 62 results in a permanent reduction of 20-30% in benefits depending upon the age of the retiring worker. Moreover, if a worker takes benefits at 62 and dies, their surviving spouse will not receive full benefits either. Therefore, a higher wage earning spouse should consider waiting until full retirement age to claim benefits. Factors such as whether a worker or their spouse is likely to have a long life expectancy, whether other family will need to qualify for benefits based on a worker’s record (ie: survivor benefits), or whether a worker really “needs” the Social Security income prior to full retirement age are important to consider when deciding when to claim benefits. Those who are not in “need” of the retirement income can even elect to defer taking benefits at age 67 and wait until age 70, thus receiving a “delayed retirement credit” for every month they defer between age 67 and 70. This can result in a benefits increase of 32%!

Most are hesitant to delay since they worry about dying before making up the difference in benefits they would have received had they begun claiming at age 62. One who files at age 62 is “ahead” income-wise until age 78 at which point they are “caught up.” Therefore, someone expecting to live beyond age 78 should delay claiming benefits until full retirement age. Similarly, someone filing at full retirement age is “ahead” until age 82.5. Again, someone expecting to live beyond 82.5 should wait to claim until age 70 in order to be better off financially.

Another complication is whether to continue working after having claimed benefits at age 62. When claiming below full retirement age, for every $2 earned over the annual income limit of $15,480, $1 of Social Security benefits are withheld. However, once a worker reaches full retirement age, the SSA recalculates their future benefits to make up for any benefits lost during these years of earning over the income limit. Therefore, people should not stop working or limit their income potential to avoid this reduction.

Spousal benefits are another area worthy of analysis. Spouse’s have 3 options: spouse/worker simply collect benefits on their own record; lower earning spouse/worker may collect higher spousal benefit (up to 50% of their spouse’s full benefit) if their spouse has filed; and widowed spouse can collect survivor benefit (typically 100% of deceased spouse’s benefit). Even a divorced spouse can meet the definition of “spouse” for purposes of claiming spousal or survivor benefits if married for at least 10 years and divorced for 2 years with both ex-spouses being at least age 62 or if widowed, then married at least 9 months in state where spouse lived at time of death and survivor being at least age 60.

As more baby-boomers reach retirement age, retirees or potential retirees should carefully examine options for claiming either their own or spousal benefits under Social Security. Questions? Contact us.