Social Security: Smart strategies to maximize payments
A Q&A with Ben Storey, director of Retirement Research & Insights at Bank of America
As employees plan for retirement, decisions about when to claim Social Security benefits could have an impact on their retirement income. While employees can start collecting benefits as early as age 62, waiting a few years, or until they reach their full retirement age (see “Find your full retirement age” below), can substantially increase the amount they receive over their lifetime.
Workplace Insights™ met with Ben Storey, director of Retirement Research & Insights at Bank of America, to get the latest thinking on what’s important for employees to consider as they approach retirement.
Workplace Insights™ (WI): Ben, we’re all living longer. Does that change how and when we claim Social Security benefits?
Ben Storey (JBS): Considering that one of the biggest retirement concerns people have is outliving their money, waiting to collect Social Security benefits begins to make a lot more sense than it might have in the past. Waiting to claim benefits can be a way of gaining a measure of protection against the risk of longevity.
As most people know, the longer you wait to begin taking benefits until age 70, the greater the monthly amount you receive. And because market interest rates are still quite low today, allowing the government to keep your money longer could potentially provide a higher return than you could get from most fixed-income investments.
WI: How might postponing payments work to an individual’s benefit?
JBS: Well, imagine that at age 66 you’re entitled to an annual Social Security benefit of $10,000. If you wait a year to claim it, you’ll forgo the $10,000 for the first year, but the following year at age 67, you’ll receive an annual benefit of $10,800 or 8% more—an amount, by the way, that is adjusted for inflation, if any, each year for the rest of your life.
WI: Should women think of Social Security benefits differently?
JBS: Women typically live longer than men, so it’s especially important for them to find ways to boost their retirement income to cover those extra years. Waiting longer to claim Social Security benefits is one strategy. For example, if a single woman waits until she is 70 to claim benefits, instead of 62, she could increase her monthly benefit by 77%, or about $545 each month.1
WI: How does being married affect the decision to claim benefits? What’s the rule of thumb for couples?
JBS: It often makes sense for the higher earner—let’s say it’s the wife—to wait until 66, or even 70, to claim benefits. Doing so increases her benefits throughout her lifetime and, should she die first, throughout the lifetime of her husband as well because his survivor benefit would step up to that of his deceased wife. If the earnings gap between the husband and wife is substantial, he might think about claiming his own reduced benefit at 62 if he has retired or has limited income, and then request a spousal adjustment once his wife claims Social Security.
WI: And what are the rules for divorced couples?
JBS: If you don’t remarry and you are 62 years of age or older, you can file for spousal benefits, whether or not your ex has filed, as long as you have been divorced for at least two years and you were married to that spouse for at least 10 years. To qualify, your ex must be entitled to benefits, and the benefit you would receive on your own work record must be less than what you’d receive based on your ex’s record. There’s a Social Security Administration web page that explains these requirements in more detail.
WI: Can you apply for a spousal benefit if your spouse hasn’t?
JBS: A married person can only apply for a spousal benefit if their spouse is receiving retirement or disability benefits. People can no longer file and then suspend their benefits, allowing them to grow while their spouse collects on their record, as they could before May 2016. And if you were born after January 1, 1954, you can no longer claim twice—or file for spousal benefits at full retirement age while allowing your own retirement benefit to grow.
WI: What’s your best advice for couples?
JBS: I’d encourage anyone approaching retirement age to speak with their financial, tax and legal advisors. When and how to begin claiming your Social Security benefits are important—and complex—decisions. It can help to talk with those who understand the rules as well as your personal situation.
WI: Is waiting always the right answer?
JBS: Waiting longer can increase the amount you receive over your lifetime, but what’s right for you may be very different from what’s right for me. You’ve got to consider your health and your family history—how long do people in your family tend to live, for instance? If your parents and grandparents didn’t live past 75, it could make sense to claim your benefits as early as age 62.
You should also consider your other retirement assets. Claiming your benefits earlier might allow you to delay drawing income from your portfolio and give it more time to grow. Also think about your goals and the kind of lifestyle you want in retirement as well as your immediate financial needs. A family caregiving situation could arise that requires your attention and financial support.
If, after you’ve considered all the factors, you feel that claiming your benefits before age 70 makes sense for you, you shouldn’t feel bad about not waiting. Social Security was conceived as a safety net. And it’s only valuable if you use it when you need it.
Find your full retirement age*
Use the guidelines below to see when you become eligible to claim full benefits.
- If you were born between 1943 and 1954…
You could claim full benefits at age 66.
- If you were born between 1955 and 1959…
Your full retirement age increases by two months for each additional year.
- If you were born in 1960 or later…
You can claim full benefits at age 67.
Your eventual benefits will continue to increase every year you delay claiming benefits past your full retirement age until you reach 70.
* If you were born on January 1, use the year before your date of birth to determine your full retirement age.
Social Security benefits can be complicated. We can work with you to schedule a Social Security seminar for your employees. Talk with your Bank of America representative today.
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This discussion of Social Security is general in nature, is intended for informational purposes only, and is not all-encompassing. The circumstances surrounding each situation differ, and additional eligibility requirements or restrictions may apply.