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Finding your Social Security ‘Sweet Spot’

Do you know exactly how Social Security is going to shape your future?

If you don’t, you’re not alone.

Social Security has become one of the most confusing and complex parts of retirement. To find your sweet spot, you need to know:

  • The best age to file
  • The type of benefit to claim
  • Your health prospects
  • The amount of any other retirement income
  • Your tax bracket
  • And you need to consider potential changes to the program

And that’s just for starters.

Most importantly, did you know that filing at precisely the right time could be worth thousands of extra dollars in benefits to you over the course of your retirement? 

That’s because there are nine ways for a single person to claim Social Security, while there are 81 unique ways for married couples. [1]  

All of this helps explain why our free Social Security workshops are our highest-attended presentations.

Education is power. Here are some key Social Security guidelines to help you figure out your sweet spot.

How’s your benefit calculated?

Social Security’s benefit calculation is … confusing. But the basics are:

  • You must accumulate 40 work credits (about 10 total years of work) to qualify
  • It averages your highest 35 years of earnings to calculate your benefit

Naturally, to receive a larger monthly benefit, you need to maximize your earnings while you’re working. (And if at any time you had a “0” on your record, it’s best to keep working until that zero comes off your earnings history (even if you only work part-time)).

The age at which you retire plays a big role.

Social Security uses something called “Full Retirement Age” (FRA) to determine when you’re allowed to claim your full benefit.

The FRA is currently 67 for anyone born in 1960 or later.

In most circumstances (there are exceptions for, among other things, people who are disabled, or for the children of recipients), the earliest you’re allowed to claim benefits is age 62 (which, according to the SSA, also happens to be the most popular time to apply).

But if you begin claiming benefits at age 62, your monthly payout will be reduced since you’re receiving an additional 60 months of benefits prior to FRA.

Conversely, you’re given an incentive to delay claiming.

Your benefit increases 8% for every year you wait past FRA. (At age 70, however, those increases stop).

Want an example? Here’s a common scenario:

  • Dave’s FRA is 67. His full monthly benefit at 67 will be $1,000.
  • At age 62, Dave would get just 70% of his full benefit (or about $700 a month).
  • But if he waits until age 70 to apply, his monthly check would be about $1,240. (That’s 8% added each year to his FRA benefit amount, which is 124% of his $1,000 full monthly benefit).

What’s your marital status?

Social Security will always pay the benefit based upon your own work record first.

But when it comes to marital status, there are other benefit types and amounts available. These include:

  • Spousal benefits
  • Widow or widower benefits (a subset of survivor benefits)
  • Ex-spouse benefits

Spousal benefits

Depending on your age, you can receive anywhere from 32.5% to 50% of your spouse’s full benefit.[1] To claim a spousal benefit:

  • You must be at least age 62
  • Your spouse must already be collecting Social Security
  • You must be married for at least a year
  • The benefit on your own work record must be less than half of your spouse’s full benefit

Widow or widower benefits

If your spouse passes away, under certain circumstances, you’re eligible for benefits if:

  • You’ve been married for 9 months or longer (in most cases)
  • Your spouse worked long enough to qualify for Social Security
  • You’re age 60 or older (50 and above if disabled)

One of the most common questions advisors hear is concerned with receiving both your own benefit and that of a deceased spouse.

Simply, can you double up?

The short answer is “no.” You won’t receive both benefits.

However, if your spouse’s benefit was higher, under certain circumstances, you will receive that amount.

As with most Social Security filing scenarios, the earlier you claim a widow or widower benefit, the less you’ll receive.

For example, if you start collecting at age 60, you’ll get 60% of the full possible benefit.[2]

Ex-spouse benefit

Here’s a type of benefit many pre-retirees are surprised exists: an “ex-spouse benefit.”

Yes, you can claim Social Security off your ex spouse’s work record.

Among other qualifying factors, you:

  • Have-to have been married for at least 10 years
  • You are unmarried
  • Your ex is entitled to benefits

In fact, you can receive up to half of your ex’s full benefit (and your ex will never even know).

What’s ahead?

From a purely financial perspective, most people believe that it usually makes sense (so long as you’re healthy) to wait as-long-as you can to claim your benefit.

But under certain circumstances, we disagree.

Here’s why.  

Social Security faces a very real future shortfall: That’s because in just 15 years, there will be fewer workers paying into the system to cover an increasing number of beneficiaries.

For instance, if no changes are made to the program, at current Social Security pay-in and tax rates, just 77% of promised benefits may be available inside the fund.[3]

What are some options?

To fix this shortfall, Congress might:

  • Increase the full retirement age
  • Implement ‘means testing’ (and eliminate good savers)
  • Increase or eliminate the payroll tax cap
  • Recalculate cost-of-living adjustments
  • Institute some combination of all these ideas

So, if you’ve saved well, and you don’t (or won’t) need Social Security to live on during retirement, you might consider claiming benefits as soon as you are eligible.

Conclusion

Social Security is too important and too complex for most people to navigate (and integrate) alone.

Education is key. Know what your options are.

Attend a free Social Security workshop (or one of our other retirement workshops) in your area to learn what approach is the best for you.  

Have immediate questions about your Social Security sweet spot? Contact us today.


[1] https://www.aarp.org/retirement/social-security/questions-answers/spouse-social-security/
[2] https://www.usatoday.com/story/money/personalfinance/retirement/2017/12/28/widow-widowers-guide-social-security-benefits/981893001/
[3] https://www.ssa.gov/oact/TRSUM/