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Just Explain It: Maximizing Your Social Security Retirement Benefits

Zelkadis Elvi

Social Security beneficiaries will receive a little more spending money this year thanks to the annual cost of living increase.

According to the Social Security Administration, the average single beneficiary will get $21 more each month – $34 for couples. It’s not much to begin with, and some of that extra cash could end up going to things like higher Medicare premiums or just groceries.

Which brings us to today’s Just Explain it.

What’s the best strategy to maximize your Social Security check in retirement?

We spoke to Richard Johnson, Director of the Program on Retirement Policy at the Urban Institute, to help break it all down.

AARON TASK: What are some of the things you can do to maximize your Social Security retirement check?

RICHARD JOHNSON: So you want to work full-time, you want to work at least 35 years. If you don’t work ten years you don’t get anything so that’s important. Social Security only counts earnings up to a certain level. So this year it’s only earnings up to $113,700. Anything you earn above that is not taxed by Social Security, but also you are not going to earn any Social Security benefits on anything above that cap. What really matters in terms of how much Social Security benefits you get is when you choose to collect…start collecting your benefits.

What’s the best strategy to do that then? Should you wait as long as possible?

Waiting as long as possible is good. So you can start collecting as early as 62, but the full retirement age for people who are now in their 60s is age 66. If you choose to retire at age 62 instead of age 66, you’re going to get only 75% of your full benefits. But, for each year you wait beyond 66 not only do you get 100% of your benefits you get an additional 8%. So if you can hold out to age 70, you’re going to get 132% of your full benefits. By retiring at age 70 instead of age 62 you’re going to get 76% more in your monthly paycheck than you otherwise would.

What’s the best way for couples to maximize their benefits?

Well for couples it’s a little more complicated. Once your spouse has started to receive benefits, you can claim on your spouse’s record. You can then get 50% of your spouse’s benefit and then and not claim on your own. And then you’re earning this delayed retirement credit on your own benefit, then you can switch over, let’s say at age 66…at age 70, switch from this relatively small spousal benefit to this now much higher benefit based on your own earnings.

When it comes to Social Security, are there things you can do to minimize the tax bill you have to pay on your Social Security checks?

A useful tax strategy might be to take some of your 401K distributions before you start collecting your Social Security. So what you could do is delay Social Security to well into your 60s, until 67 or 68, take your 401K in your early 60s at least that way you’re not going to have to pay as much tax on your Social Security when you do start collecting.

Can you keep working while you’re collecting Social Security? Does that affect your benefits?

For people who are collecting benefits and are below their full retirement age, below 66 today, if they earn more than a certain amount their Social Security benefits will be reduced. And that threshold today is about $15,000. So for every two dollars that you earn above that level, above $15,000, they’re going to lose one dollar in Social Security benefits. However, after the full retirement age, after 66, you can earn as much as you want. It will have no impact on your Social Security at all.

I would imagine that a lot of Social Security beneficiaries are frustrated by the fact that they’re only getting an additional $21 a month, because it seems like the price of everything else is going up a lot more than Social Security. Is that a common complaint? What do you say to those folks?

It is a common complaint. But when you look at the data, the Consumer Price Index (CPI) is computed on a market basket of goods that workers are consuming. One concern has always been that the CPI, and thus the change in the Social Security COLA (cost of living adjustment), does not fully reflect increases in healthcare costs. Healthcare costs lately have been rising a little bit faster than average, though they have slowed down a lot in the past few years. That is one concern, but energy costs are very erratic. Older people tend to use a little bit less in energy than younger people. On average I think it works pretty well. I mean if people are concerned now, one of the bigger concerns is there’s talk about changing the way these cost of living adjustments are made that would actually bring down the increase a little bit in the future. So things might be a little worse in the future. One way to save money so Social Security doesn’t go bankrupt.

Like most retirement savings programs, decisions related to your Social Security retirement benefits should be made in advance. How and when you claim benefits will help to maximize the check you’ll receive in retirement.

Did you learn something? Do you have a topic you’d like explained? Give us your feedback in the comments below or on Twitter using #justexplainit.