Making the most of Social Security takes effort. Although it’s easy to go on autopilot and just make the same decisions that family, friends, and others typically make, you risk missing out on some opportunities to boost the monthly checks you’ll rely on to help make ends meet for the rest of your life.
Social Security has some complicated provisions, and in many cases, there isn’t a clear-cut answer about which is the absolute best strategy to follow. But there are a few situations where there’s a very definite wrong answer in all circumstances. The following three moves never make sense and they always result in leaving money on the table in retirement.
1. Waiting past age 70 to claim Social Security retirement benefits
Most people claim Social Security as soon as they’re allowed to, which in most cases is age 62. However, the Social Security Administration (SSA) provides a financial incentive for workers to wait beyond age 62 to start receiving their benefits. Workers claiming retirement benefits at age 62 suffer a hit of between 25% and 30% on what they’d receive at full retirement age, which right now varies by birth year from 66 to 67. Those who wait beyond full retirement age can get an additional bonus in the form of delayed retirement credits, which add 8% per year to monthly benefit payments.
However, those delayed retirement credits stop accruing once you reach age 70. Therefore, if you wait until after turning 70 to claim Social Security benefits, they’ll be exactly the same size as they would’ve been if you had started receiving them right on your 70th birthday. In essence, all you accomplish by waiting longer is to miss out on every monthly payment between when you turn 70 and when you finally get around to filing your claim with the SSA.
In some cases, the SSA allows retroactive monthly benefits to get paid, and back-payments of up to six months are available. But the key is to realize that you won’t automatically start getting benefits when you reach age 70, so you’ll want to be careful not to miss out.
2. Waiting past full retirement age to claim spousal benefits (for non-working or low-income spouses)
Although missing age 70 isn’t a common mistake, something you see more often is spouses failing to understand the difference between spousal benefits and their own retirement benefits. For the Social Security payments that are based on your own work record, delayed retirement credits can boost what you receive if you wait beyond full retirement age. However, if you’re claiming spousal benefits based on a spouse or ex-spouse’s work history, then the rules are different.
Spousal benefits aren’t entitled to delayed retirement credits. That means that there’s no boost to your monthly payment by waiting beyond your full retirement age to claim spousal benefits. If you intend to rely solely on spousal benefits for the rest of your life because they’re larger than any available retirement benefit on your own work history could ever be, then once you reach full retirement age, you should always file that application and get started.
Keep in mind, though, that there are situations where waiting on spousal benefits is smart if your own work record will lead to larger retirement benefits based on your own history. Under current law, most people are deemed to file for their own benefits at the same time they file for spousal benefits. Therefore, if you want delayed retirement credits on your own retirement benefits, you can’t file for spousal benefits at full retirement age because you’ll be treated as taking your own benefits simultaneously. Only by foregoing your spousal benefit can you earn the delayed retirement credits you want on your own retirement payout.
3. Failing to coordinate retirement and survivor benefits
If you were married and your spouse has passed away, decisions you make about your benefits can have huge consequences. Typically, you’ll have access to your own retirement benefits, as well as survivor benefits based on your deceased spouse’s work history. Unlike with spousal benefits, you are allowed to claim either retirement or survivor benefits without claiming the other at the same time. So it’s crucial to coordinate the two in order to get the most benefit.
For example, say you’re 62 and your spouse recently passed away. Your work histories would entitle you to a full retirement benefit of $1,200 per month or a full survivor benefit of $1,200 per month. To get those figures, you’d have to wait until full retirement age, which in this case is 66 and four months based on a birth year of 1956.
If you claim both benefits now, both will be reduced for claiming early, leaving you with payments of $880 per month. If you wait to claim both, you’ll get $1,200 per month.
But you also have the choice to claim one benefit now while letting the other grow. In this case, you could claim survivor benefits now and start getting that $880 per month. Then later, you could claim your retirement benefits and get the full $1,200 monthly amount. You’d get more than four years’ worth of $880 monthly payments that you wouldn’t have gotten if you’d waited to claim any of your benefits, but you’ll get $320 per month extra for life that you wouldn’t have gotten if you’d claimed both benefits at the same time. Only by knowing the rules can you pick the choice that gives you the best of both worlds.
Be smart about Social Security
With Social Security, there are many situations in which reasonable people can disagree about the right strategy to use. For instance, whether you take Social Security early at age 62 or wait longer is a topic for debate. But with the three situations above, you’re only doing yourself harm by making the wrong move. Knowing these traps and how to avoid them will help you get more from your Social Security benefits.