When it comes to Social Security benefits, the strategy you use can significantly impact the size of your monthly checks. While most people are aware that delaying benefits can lead to larger payments, there’s a lesser-known tactic that could also increase your monthly income—even after you’ve started receiving payments. Understanding this hidden rule could make a substantial difference in your financial security during retirement.
Maximizing Social Security
The amount you receive in Social Security benefits isn’t set in stone once you start collecting. Factors like cost-of-living adjustments (COLAs) can alter the amount, but your timing for claiming benefits also plays a crucial role.
The age at which you begin claiming these benefits is a key factor in determining your monthly check. Claiming early, at age 62, results in a smaller benefit, while waiting until age 70 can boost your check by up to 79%. This significant increase emphasizes the importance of strategic timing.
Delayed Filing and Its Benefits
To put the impact of delayed filing into perspective, consider this example: If you claim benefits at age 62, you might receive around $1,465 per month. However, by waiting until age 70, that monthly check could rise to $2,634. That’s a 79% increase—an impressive difference that underscores the value of patience.
But what if you’ve already started receiving benefits? Is it too late to increase your monthly check? The answer is no. A lesser-known strategy can help boost your benefits by up to 26.7%, even after you’ve begun collecting Social Security.
How to Calculate Your Benefits
Understanding how Social Security benefits are calculated is crucial for anyone looking to maximize their income. Three primary factors determine your monthly check: your work history, the age at which you claim, and your Average Indexed Monthly Earnings (AIME).
Work History: The number of years you’ve worked and paid into Social Security is essential. The more years you work, the higher your benefits can be.
Age of Claim: This is where strategic planning comes into play. The age you choose to start receiving benefits directly affects the amount you’ll get each month.
AIME: Your average monthly earnings over your highest-earning 35 years, adjusted for inflation, play a critical role in determining your benefit amount.
From AIME to PIA
Once the Social Security Administration (SSA) has calculated your AIME, they determine your Primary Insurance Amount (PIA). This is the monthly benefit you would receive if you claim at your full retirement age (FRA).
The FRA varies depending on your birth year. For instance, those born in 1954 or earlier have an FRA of 66, while anyone born in 1960 or later has an FRA of 67. Claiming before FRA reduces your monthly check, while delaying it increases the amount, especially if you wait until age 70.
The Hidden Strategy
A surprising strategy that many retirees overlook is the ability to suspend benefits. This tactic allows you to temporarily stop receiving your monthly checks, thereby earning delayed retirement credits. For each month your benefits are suspended, the SSA increases your eventual monthly payment by two-thirds of a percentage point.
You can suspend your benefits once you reach your FRA, and the suspension will continue until you request the benefits to resume or until you turn 70, at which point the benefits automatically restart. This approach can lead to a significant increase in your monthly income, making it a valuable option for those who claimed benefits early but now want to maximize their retirement income.
Important Considerations
While suspending benefits can be a powerful tool, it’s essential to understand the potential downsides. For example, if others, such as a spouse, are collecting benefits based on your earnings record, they will stop receiving those benefits when you suspend yours.
Additionally, if you’re enrolled in Medicare, you’ll need to pay your Part B premiums out of pocket during the suspension period, as these are usually deducted from your Social Security check.
Planning
Deciding when and how to claim Social Security benefits is a critical component of retirement planning. While suspending benefits can increase your income, it’s essential to consider how this decision will affect your overall financial situation.
Balancing the potential for higher monthly checks with the needs of those who rely on your benefits and your healthcare costs is crucial. With careful planning and an understanding of the rules, you can make decisions that align with your retirement goals and provide greater financial security.
FAQs
What is the maximum age to claim Social Security benefits?
The maximum age is 70. Benefits don’t increase if claimed after 70.
How much can I increase my benefits by suspending them?
You can increase your benefits by up to 26.7%.
Can I suspend benefits after I start receiving them?
Yes, you can suspend them after reaching full retirement age.
What happens to spousal benefits if I suspend mine?
Spousal benefits are suspended too, except for divorced spouses.
Will suspending benefits affect my Medicare coverage?
No, but you’ll need to pay Part B premiums directly.
