Social Security retirement benefits are meant to provide monthly income to eligible workers, as well as their spouses, survivors, and dependent children. There are a variety of strategies around when to claim benefits that can have a significant impact on the amount of money you can receive. In order to enjoy financial security and make the most of your retirement, it’s important to think hard about when to claim your benefit.
You are eligible for Social Security benefits at age 62, considered “full retirement age” by the Social Security Administration. For every year you put off collecting between age 62 and 70, you’ll increase your benefit between 5 percent and 8 percent. Many elect to work longer or to rely on other sources of retirement income to maximize social security benefits.
According to the Social Security Administration, almost 75 percent of taxpayers apply for social security benefits between age 62 and full retirement age. Some regret this decision, or simply had a change of plans. Prior to 2010, retirees could that changed their mind about electing Social Security benefits were allowed to “un-elect” their benefits and re-file at a later age, provided that they pay back all the benefits received up to the point of changing their minds.
Rules Have Changed
According to the Center for Retirement Research at Boston College, this loophole cost the Social Security system somewhere between $5.5 and $8.7 billion. This had essentially been an interest-free loan to retirees.The Social Security Administration changed the provision in December 2010. Now you can only change your mind and pay back benefits received within one year of electing your Social Security Benefits.
In the words of the Social Security Administration, “If you are receiving Social Security Retirement benefits and you change your mind about when they should start, you may be able to withdraw your Social Security claim and re-apply at a future date. However, if you change your mind 12 months or more after you became entitled to retirement benefits, you cannot withdraw your application.”
File and Suspend Strategy
One strategy that many use to maximize benefits is called “file and suspend.” This allows one spouse to collect partial benefits while the higher-earning spouse waits to collect Social Security benefits at a later age. When the higher earner files for Social Security and immediately suspends the election, the spouse is still eligible for spouse benefits. This provision was established when men were typically the worker and women were homemakers but is still in effect today. It can be helpful for couples when a) they are close enough in age so that both reach retirement age around the same time, and b) one spouse doesn’t have as much as they other invested in the Social Security system.
File and Keep Working
Another strategy is to continue to work after electing to receive your Social Security benefits. This could lead to a higher benefit for you in the future. The Social Security Administration reviews the records for all working Social Security recipients each year. If your earnings for the prior year are higher than one of the years used to calculate your retirement benefit, Social Security will recalculate your benefit amount, and pay the increase retroactive to January the year after you earned the money. Higher benefits can be important to you later in life and increase the future benefit amounts your family and your survivors could receive.
Social Security is typically one part of a person or family’s retirement income. It is important to look at all of your assets to determine a sustainable retirement plan.