As you transition into retirement, you’ll face many big decisions. One of the biggest will be when and how to file for Social Security benefits. It’s an important decision, as Social Security may play a large role in your retirement income plans.
Your decision about when to file is also important because it’s permanent. In most cases, your Social Security benefits cannot be altered or adjusted after you file and begin receiving benefits. Your payment may increase because of cost-of-living adjustments, but you can’t change your filing after the fact to increase your benefits.
Given the large role Social Security will play in your retirement, it’s helpful to understand how your benefit is calculated. The Social Security Administration considers a number of factors when it calculates your benefit, including your career earnings, your marital status and your age at the time you file for benefits.
If you understand the factors used to calculate your benefit, you can take action to maximize your payment. Below are a few things to consider when planning your Social Security strategy:
Replace low-earning years in the benefit calculation.
Your Social Security benefit is based largely on your earnings during your career. The Social Security Administration averages your 35 highest-earning years to calculate your average annual earned income. That number is then used to determine your benefit.
Of course, that calculation can be problematic if you don’t have 35 years with earnings. You may have taken a break during your career or maybe you had a stretch where you earned little income. Those years are still counted in the average even if you had no income.
You may want to analyze your earnings history to determine which years are being used in the formula. If possible, consider working a few additional years. If you earn a substantial amount in those extra years, the agency could replace your low-earnings or no-earnings years in the calculation, which would boost your average annual income and, subsequently, your benefit amount.
Wait as long as possible to file.
You may be tempted to file for benefits as soon as you’re eligible, but it pays to wait. You are eligible to file for benefits at age 62. However, your full retirement age is likely 66 or 67. Full retirement age (FRA) is the age at which you can receive 100 percent of your benefit. If you file before your FRA, you may see your benefits greatly reduced.
You can increase your benefit amount by delaying your filing beyond your FRA. Social Security offers an 8 percent benefit credit for each year your filing is delayed past your FRA, up to age 70. For example, if your FRA is 66 and you delay filing for four years, to age 70, your benefit would increase by a total of 32 percent, or 8 percent per year over four years.
Explore benefit changes due to your new marital status.
Were you recently married, or is marriage on the horizon? Or did you recently leave a long-term marriage? Your marital status can have a big impact on your Social Security benefit, assuming you know which filing strategy to use.
Married couples can take advantage of what’s called a spousal benefit. This allows one spouse to base their Social Security benefit off the other spouse’s career earnings rather than their own. It can be advantageous for spouses who have limited work history or low career earnings. You can take advantage of this strategy even if you were recently married.
You can also take advantage of the spousal benefit if you are divorced. Assuming you were married at least 10 years and have not remarried, you can file for spousal benefits based off your ex-spouse’s career earnings. Filing for a spousal benefit won’t impact his or her benefit in any way.
Ready to plan your Social Security maximization strategy? Let’s talk about it. Contact us today at Carstens Financial Group. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
The material is not intended to be legal or tax advice. The insurance agent can provide information, but not advice related to social security benefits. Clients should seek guidance from the Social Security Administration regarding their particular situation. The insurance agent may be able to identify potential retirement income gaps and may introduce insurance products, such as an annuity, as a potential solution. Social Security benefit payout rates can and will change at the sole discretion of the Social Security Administration. For more information, please consult a local Social Security Administration office, or visit www.ssa.gov
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