Social Security turns 76 this week, and the program
continues to be most Americans' biggest source of retirement income. However,
the size of your payments will depend on how much you earn while working and
when you sign up for Social Security. You may also be able to secure additional
payments for your spouse, dependent children, and survivors. Here's how to
maximize the amount you will receive from Social Security in retirement:
Work for at least 35 years. Social Security benefits are
calculated based on the 35 years of your career in which you earn the most. If
you haven't worked for at least 35 years, zeros are averaged into the
calculation, which will lower your payout. "You can improve your benefit
if you continue working and replace low-earning years or zeros in your record
with higher-earning years later on in your career," says Jim Blankenship,
a certified financial planner for Blankenship Financial Planning in New Berlin,
Ill., and author of A Social Security Owner's Manual.
[See 12 Ways to Increase Your Social Security Payments.]
Earn more. Increasing your income now by asking for a raise
or taking a second job not only gives you more spending power now, but will
also increase the amount you get from Social Security in retirement. "Any
years that you have more income than a prior year, you are increasing your
benefit," says Lesley Brey, a certified financial planner for LJ Brey
Inc., in Hawaii.
Wait until your full retirement age. To get the full payout
you are entitled to, claim Social Security at your full retirement age. That's
age 66 for most baby boomers and 67 for people born in 1960 or later. If you
sign up before your full retirement age, your monthly payments will be
permanently reduced. You don't necessarily need to claim Social Security the
same year you retire from your job. "You can use your savings to bridge
the time between 62 and 66 while you delay claiming Social Security," says
Kelly O'Donnell, vice president at Financial Engines.
Delay claiming until age 70. After your full retirement age,
your monthly payments will increase by 8 percent for each year you delay
claiming up until age 70. "You're not going to get that return anywhere
else, and then it will pay out forever," says Brey. After age 70, there is
no additional benefit to further delaying claiming.
Claim spousal payments. Married couples are eligible to
claim benefits based on their own work record or up to 50 percent of the higher
earner's benefit, whichever is higher. However, spousal benefits are reduced if
you claim them before your full retirement age. "The main way to improve
this benefit is to delay receiving it until at least full retirement age, since
it will be reduced if you take it at age 62," says Blankenship.
Claim twice. Dual-earner couples who have reached their full
retirement age may be able to claim spousal benefits and then later switch to
payments based on their own work record, which will then be higher due to
delayed claiming. "If you are going to be delaying until age 70 anyway,
this is a way to receive some benefit between age 66 and 70," says
Blankenship.
[See What Older Workers Don't Know About Social Security.]
Include family. If you have dependent children when you
claim Social Security, you may be able to secure additional payments for them.
To receive benefits, the child must be unmarried, age 19 or younger, or
disabled. Each qualifying biological child, adopted child, or stepchild may
receive a monthly payment up to one-half of your full retirement benefit amount
up to certain annual limits.
Claim on an ex-spouses's record. If you were married for at
least 10 years, you can claim Social Security benefits based on an ex-spouse's
work record.
Don't earn too much in retirement. If you work and claim
Social Security benefits at the same time, some of your benefit may be
temporarily withheld if you earn too much. People under their full retirement
age who earn more than $14,640 in 2012 will have $1 withheld for each $2 they
earn above the limit. For the year you reach your full retirement age, the
earning limit jumps to $38,880, and the penalty decreases to $1 withheld for
every $3 earned above the limit. Once you reach the month of your full
retirement age, there are no restrictions on how much you can earn while
receiving benefits and your payments will be recalculated to reflect the
withheld payments.
Minimize Social Security taxes. Your Social Security payout
may be taxable, depending on how much income you will have in retirement. If
the sum of your adjusted gross income, nontaxable interest, and half of your
Social Security benefits is between $25,000 and $34,000 ($32,000 and $44,000
for couples), income tax could be due on up to 50 percent of your benefits. If
those three items total more than $34,000 ($44,000 for couples), up to 85
percent of your Social Security income may be taxable.
Maximize survivor's benefits. Widows and widowers are
eligible for the higher earning spouse's full retirement benefit. The higher
earner can maximize the benefit the surviving spouse will receive by waiting to
sign up for Social Security. "If you want the maximum amount for the
survivor, the higher earner should wait until age 70," says Brey.
[See 10 Places to Retire on Social Security Alone.]
Sign up for direct deposit. You'll get your Social Security
payments faster and can avoid fees and a trip to the bank by having them
directly deposited to a bank or credit union account. New Social Security
recipients no longer have the option to receive their payments as paper checks
through the mail, but must have their Social Security payments directly
deposited into a bank account or loaded onto a Direct Express Debit MasterCard.
Existing Social Security recipients have until March 1, 2013, to select one of
these forms of electronic payments.
Make sure your work counts. The Social Security
Administration began offering the option to view Social Security statements
online on May 1, and one million people have already downloaded their
statements. It's important to check your online Social Security statement
annually to make sure your earnings history and Social Security taxes paid have
been recorded correctly by the Social Security Administration. If you spot any
errors, take steps to correct them while you have your current tax information
handy. Make sure you are getting credit for the taxes you are paying into the
system.
