By Ted Stricker, CFP®
Although Social Security benefits were never intended to be the sole source of retirement income for American seniors, it’s a reality that the majority of Americans rely heavily on this benefit to support them in their later years. (The other harsh truth is that many recipients have little to no retirement savings to support them.)
According to the latest available statistics from the Social Security Administration, the average retired worker’s benefit is $1,920/month or $23,040/year. Contrast this with the latest Bureau of Labor Statistics report where average retiree expenditures are roughly $4,235/month. However you look at the numbers, it’s clear that receiving all that you’re entitled to from Social Security is important to your financial future in retirement. Here are some tips to maximize your benefits.
Work for the Full 35 Years
Even though you start qualifying for benefits after working and contributing to Social Security for 40 quarters or 10 years, your benefits are based upon the average of your highest 35 years of earnings. If you’ve worked for less than this, those non-working years are entered as a zero and averaged into the calculation. By working for at least 35 years before applying for benefits, you avoid those “zero years” and increase your average.
Wait Until FRA to Collect Benefits
This is the most important point, but one many recipients ignore or where they make a critical mistake. Your benefits are calculated to be fully available to you at your FRA (full retirement age) based upon your year of birth. (FRA for everyone born after 1942 through 1954 is age 66, and two months are added for each year after 1954. Those born in 1960 and afterward have an FRA of 67.)
While you are eligible to collect starting at age 62, your benefit amount is reduced by roughly 6.67% per year (or 5/9ths of 1% per month). Many people do file for benefits at age 62, but they lose about 30% of their full benefit by doing so. Once you claim and start receiving SS income, other than cost-of-living adjustments, your benefit is set for life and is generally irreversible (although there are exceptions).
Wait Until Age 70 to Claim Your Benefit
Conversely, waiting until after your FRA can increase your benefit substantially. For each year you defer receiving SS income after your FRA, your benefit increases 8% per year. For example, if your monthly benefit would be $2,000 at age 67 and you deferred claiming benefits, at age 70 it could be $2,480, representing a 24% increase you’d receive for life.
This is especially important if your benefit is greater than your spouse’s and you expect your spouse to outlive you. If the surviving spouse’s monthly benefit is less than their deceased spouse’s, he or she begins to receive the higher of the two after their spouse passes.
Work While Receiving SS Income
Even if you worked for at least 35 years, some of those years may have been low-earning years. Remember that SS counts the highest 35 earnings years, so by continuing to work at a higher earned income level late in life, you could replace those low-earning years with higher ones in the total calculation of your benefits.
Be careful, though. The rules cap how much you can earn without affecting your benefits. In 2024, if you collect prior to FRA, you can earn only up to $22,320, and in your FRA year, if you collect before FRA, your maximum earnings level is $59,520. (After you’ve reached FRA, there is no earned income cap or effect on your benefits.)
Remember the Spousal Benefit
Even if you did not work for 10 quarters and are not eligible for benefits, you may still be able to collect a spousal benefit based upon your spouse’s earnings. Generally, your spousal benefit at FRA is 50% of your spouse’s FRA benefit, as long as you wait until your FRA to claim your benefit. If you claim earlier, however, your spousal benefit is reduced in the same manner (6.67% per early year) as the regular benefit would be.
There used to be strategies where a spouse could first claim a spousal benefit early, then switch over to their own higher benefit later. This strategy was eliminated in 2015.
You Might Still Collect on Your Ex’s Benefit
For divorcees, remember to check and compare your benefit with your ex-spouse’s (if theirs could be substantially higher than yours). As long as you have not remarried, if you were married to your former spouse for at least 10 years, you are eligible to collect an amount equal to 50% of their benefit if that amount is higher than yours, even if they have remarried (and even if they were also married again for 10 years and later divorced!).
If You Have Questions, Speak With Us
Social Security rules and strategies can be confusing, but coordinating your maximum benefits with your other retirement planning could be crucial to your financial future. With our Certified Public Accountants and CERTIFIED FINANCIAL PLANNER® professionals, we stay current with the latest in tax laws and planning strategies to help you pursue a rewarding and comfortable retirement, according to your unique and special objectives.
To get started and make the most of your hard work, schedule a meeting by calling (212) 221-1140 or email [email protected].
About Ted
Ted Stricker is a partner and financial advisor at Bernath + Rosenberg, a full-service accounting, tax, and wealth management firm with offices in Monsey, NY, Lakewood, NJ, Cedarhurst, NY, and Miami Beach, FL. The firm demonstrates a personalized approach to custom-tailored solutions and an unwavering commitment to client service. With over 26 years of experience in the financial services industry, Ted manages the firm’s wealth management team, and specializes in designing financial plans for business owners and affluent families. Since joining the team in 2015, he provides practical and sound advice, combining innovative approaches and solutions that reflect clients’ personality, lifestyle, and goals.
For the ninth year in a row, Bernath + Rosenberg has been named as one of the leading CPA firms in financial planning by Accounting Today, a publication that receives hundreds of submissions each year and features the Top 150 Firms in the nation. Ted is a CERTIFIED FINANCIAL PLANNER® practitioner and is a member of the Financial Planning Association. To learn more about Ted, connect with him on LinkedIn.
