Maximizing Social Security income is all about understanding the process. In addition to choosing the right time to take benefits, it's important to understand which benefits you may claim.
Although most taxpayers can expect a Social Security payout from their own working histories, you might also be entitled to benefits from your spouse — or even an ex-spouse. Here are some questions you can ask to help determine how best to maximize your Social Security benefits.
When Should You Start Taking Social Security Benefits?
To maximize Social Security benefits, you need to figure out the best time to enroll.
But the mathematical truth is that unless you know exactly when you will die, there is no right or wrong answer. You must make an educated guess. However, if you're a relatively healthy individual and expect to live a long life in retirement, the longer you can delay your benefits — at least up to age 70, when benefits top out — the larger they will be.
For those born in 1943 or later, benefits will rise 8 percent for each year you wait to claim them, according to the Social Security Administration. If you claim your benefits early — meaning, before the current "full retirement" age of 67 for those born in 1960 or later — your benefits will be permanently reduced.
The "right" answer for maximizing Social Security benefits will depend on factors unique to your situation. For example, if you have a large pool of savings available from retirement sources such as a company pension or 401k plan, you might not need to take benefits before you reach full retirement age. Other individuals — such as those in poor health — might be better served taking the benefit as early as possible.
How Do Social Security Disability Benefits Work?
Many people view Social Security simply as a retirement benefit. In reality, Social Security has an important disability component as well. Social Security Disability Insurance is funded by the same FICA taxes that pay for the Social Security retirement system.
Although this benefit is available to all who pay into the Social Security system, you have to qualify in order to receive payments. You can draw Social Security disability benefits if you meet the government's definition of disability, if you have earned enough quarters of coverage and if you have worked recently enough.
In terms of work requirements, you'll usually need 40 quarters of coverage to qualify, including 20 quarters in the prior 10 years ending with the year you became disabled. The earnings needed to qualify for a quarter of coverage vary from year to year. As of 2017, earning $1,300 would give you one quarter of coverage.
To qualify, you'll need to be totally disabled. Partial disability or short-term disability does not qualify for the program. Specifically, you need to demonstrate that you cannot complete either your current job or any other job, and that your condition is expected to last for at least one year or result in death.
Can You Take Advantage of Social Security Spousal Benefits?
Are you a nonworking spouse who assumes you're not entitled to Social Security benefits? You might be leaving some money on the table.
As a spouse of a qualified worker, you qualify for the Social Security spousal benefit, which can be substantial. If you and your spouse are both at full retirement age when you file, you can claim a spousal benefit equal to 50 percent of your spouse's benefit.
As with regular Social Security benefits, filing before full retirement age means your benefit will be permanently reduced. As a result, the way to maximize this benefit is to both know it exists and to claim it as late as possible up to age 70.
Is It Possible to Boost the Amount You Will Get?
If you can work longer or earn more money, you can help maximize your Social Security benefit.
Your Social Security benefits are based on your highest 35 years of earnings. If you've worked less than 35 years, your earnings record will have zeroes for those years, thereby lowering your ultimate Social Security benefit. Working additional years allows you to fill in those zeroes with higher earnings figures, which will translate to an increased Social Security benefit.
Even if you already have 35 years of earnings, you can still increase your Social Security benefit if you earn more than your lowest-recorded years. For example, if you earned $10,000 one year but can earn $20,000 this year, this year's income will replace the year you earned just $10,000. That will push your monthly Social Security benefit higher.
As mentioned before, another way to boost your Social Security income is to delay taking benefits past your full retirement age and right up until the age of 70. After you turn 70, there is no financial advantage to waiting longer to claim benefits.
Are You Entitled to Benefits From Your Former Spouse?
Even if you're divorced, you may be entitled to Social Security benefits from your former spouse. As long as your former marriage lasted at least 10 years, you can claim spousal benefits — even if your former spouse has remarried — as long as you meet the following criteria:
- You are 62 or older
- You remain unmarried
- The benefit you earned during your own working life is less than what you would receive based on your ex-spouse's work record
- Your ex-spouse is entitled to benefits
If you've been divorced for at least two years, you can claim your benefit from the Social Security office even if your ex-spouse has not yet filed for benefits. If you retire at your full retirement age, the amount of your benefit is one-half of the full benefit of your ex-spouse.
Your benefit is disallowed if you have remarried. However, if that marriage ends — whether by death, divorce or annulment — you are entitled to benefits on your first spouse's record.
Are You Working Too Much?
It's important to know how working impacts Social Security benefits. If you're still working and drawing Social Security before your full retirement age, your benefits will be reduced. If you are under full retirement age, the Social Security Administration will withhold $1 for every $2 in income above $16,920. If you reach full retirement age in 2017, the payment reduction drops to $1 for every $3 earned in excess of $44,880.
However, this money is not lost, and you can even use it as a part of your Social Security maximization strategy. Once you reach full retirement age, not only are payments no longer reduced, they'll actually increase to compensate for the amount previously withheld. This can be a way to maximize your Social Security payments later in life, after you stop working.
Once you reach full retirement age, you're entitled to your full Social Security benefit, no matter how much you work or earn.