There are steps you can take now and closer to retirement in order to maximize your Social Security benefits. When filing for your social security benefits the goal is always to maximize the amount that you will receive, and it’s never too soon to start assessing your situation, even if you’re in your 40’s, and 50’s.
Before I talk strategies, it makes sense to understand how the Social Security program is set up, because what you do during your working years if you’re still earning, can impact what you collect in retirement.
Social Security is calculated based on your highest 35 years of indexed earnings. The bottom line is the more years of higher earnings, the better your average will be. The AIME (average indexed monthly earnings) is the number you want to impact. It is the result of dividing the sum of your 35 highest years by the number of months in 35 years. The AIME determines your benefit, which is called the Primary Insurance Amount (PIA). The amount of retirement benefits paid depends on your age when you begin receiving benefits. You can begin to receive benefits at 62, but benefits are reduced when taken before your Full Retirement Age (FRA) and increased when taken after FRA. The longer you wait to claim benefits, the bigger your check will be. Click this link to determine your FRA https://www.ssa.gov/oact/progdata/nra.html. Understanding how benefits are calculated, the first thing everyone should do on an annual basis is to check your earnings that the Social Security Administration (SSA) has on record to make sure it’s correct and to understand the current estimate of their PIA. Here’s the link to check your earnings record: https://secure.ssa.gov/RIL/SiView.do (The SSA used to mail an annual statement, but they stopped doing that a few years ago. You must go online to to review your record.)
When claiming your benefits, there are different filing options that you can use. Unfortunately, some recent legislation enacted at the end of 2015 will limit some of the more commonly used strategies. The filing options really depend on your needs and preferences, as well as those of your spouse if you are married. There are some options that you will need to take off your list, especially if you’re not close to retirement yet. For one, a strategy called “File & Suspend” is not going to be an option after mid-2016. File & Suspend involves someone reaching FRA, filing for benefits and then immediately suspending them, allowing a spouse to become eligible for spousal benefits while the primary worker gets to delay his in order to earn additional retirement benefits. There is also a strategy called “Restricted Application” which is being changed. A Restricted Application takes place when someone who is at FRA applies for spousal benefits only and delays his or her own benefits allowing them to grow 8 percent a year. Restricted application works well if the younger spouse is not the higher earner and wants to file for benefits early. Depending on your age you still may be able to use it. You would need to reach your full retirement age in 2019 to file a restricted application.
The best way to maximize your social security retirement benefits is to develop a complete picture of your retirement plans and goals, get your (and your spouse’s) earnings records, and figure out what retirement income you need, and when you need it. There are factors that will impact how you coordinate benefits with your spouse and influence the filing choices you make. For example, if you plan to live into your 90’s, it might be beneficial to wait until age 70 in order to increase your benefit, whereas if you have a terminal illness, collecting your benefit earlier might make sense. There are a lot of calculators and information on the Social Security Administration website (https://www.ssa.gov/retire/) that can help you develop a plan, and it also makes sense to consult with an advisor. The decisions you make when claiming your Social Security benefits can amount to a difference of ten of thousands of dollars over your lifetime.