How to Maximize Your Social Security Benefits. By: Rick Viader

As you approach retirement, you may wonder how much you’ll have available to spend on the goods and services that you need. One of the primary sources of income in retirement for many people is their Social Security benefits. 

There are literally thousands of ways that people can take their Social Security retirement benefits. Often, the difference between a good decision and a not-so-good decision about Social Security can amount to a difference of $100,000 or more in benefits received (or not received) over a lifetime.

 

When are You Eligible for Social Security Retirement Income Benefits?

Qualifying for Social Security retirement benefits depends on several factors. One is whether or not you have earned income in a job that pays into the Social Security system. In addition, you need to compile a total of 40 work credits over your lifetime. You can earn up to four of these credits per year. In 2020, you received one credit for each $1,410 of earnings you have.

You also have to be at least age 62 to be eligible for Social Security retirement benefits. However, claiming your benefits before you have reached your “full retirement age,” or FRA, will result in a permanently reduced dollar amount.

When the Social Security program was initially created, those who had reached age 65 were considered to have reached their full retirement age, and were, therefore, eligible to receive their full amount of retirement benefit from the system – provided that they qualified. 

In order to ease some of the funding strain on the Social Security system, the full retirement age was later changed in 1983, gradually raising to age 67, depending on the year of the recipient's birth. 

 

Social Security Full Retirement Age

Year of Birth

Minimum Retirement Age for Full Benefits

1937 or Before

65

1938

65 + 2 months

1939

65 + 4 months

1940

65 + 6 months

1941

65 + 8 months

1942

65 + 10 months

1943 to 1954

66

1955

66 + 2 months

1956

66 + 4 months

1957

66 + 6 months

1958

66 + 8 months

1959

66 + 10 months

1960 or Later

67

Source: Social Security Administration

 

Instead of filing for your Social Security retirement benefits at your FRA or before, you could instead opt to wait. By delaying the receipt of your benefits, you can permanently increase the dollar amount you receive going forward.

In this case, the longer you wait to receive your benefits, the more "delayed retirement credits" you will receive – until you reach age 70. (You can continue to delay the receipt of your benefits beyond age 70, but you will not be able to build up any more delayed retirement credits). The amount of this benefit increase is 8% per year for anyone who was born in 1943 or later.

 

Social Security Spouse’s Benefits

Spouses of Social Security recipients may also be eligible to receive retirement benefits, as long as they are at least age 62 and the worker-spouse is either currently receiving Social Security, or is eligible to receive it (but has not yet filed). 

If a spouse waits until his or her own full retirement age to start receiving their Social Security spousal benefits, then the benefit amount that they receive will be equal to one-half of his or her worker-spouse's full benefit amount. (Otherwise, if the spouse files early, the dollar amount of their benefits will be reduced permanently).

In addition, even though most people are aware that spouses of Social Security recipients may receive benefits based on their husband or wife's earning record, few are familiar with the fact that you can also obtain benefits based on a former spouse's record. But you can.

If you're divorced, you may be able to receive benefits based on your ex-spouse’s record – even if he or she has remarried – provided that the following factors apply:

  • Your marriage to your ex-spouse lasted at least 10 years
  • You are age 62 or older
  • You are unmarried
  • Your ex-spouse is entitled to Social Security benefits (although, they do not have to actually be receiving those benefits yet), and
  • The benefits that you are entitled to receive based on your own work record are less than the benefits you would receive based on your ex-spouse's record.

 

Social Security Survivor's Benefits

When someone receiving Social Security income passes away, his or her surviving dependents may be eligible to receive survivor's benefits – as long as the original benefit recipient had at least the minimum amount of work credits.

The amount that can be received as survivor's benefits is based on the amount of retirement benefit that the deceased individual is either receiving in retirement benefits, or the amount that they would have received in retirement benefits if he or she had reached their full retirement age. 

 

Taxation of Social Security Retirement Income

In some cases, Social Security retirement benefits may be taxable. This is true if you are receiving Social Security before your full retirement age and you are also receiving income from various other sources.

For instance, you may be taxed on Social Security if:

  • You file a federal tax return as an individual and your combined income is:
  • Between $25,000 and $34,000 (up to 50% of your benefits may be taxable)
  • More than $34,000 (up to 85% of your benefits may be taxable)
  • You file a joint tax return, and you and your spouse have a combined income that is:
  • Between $32,000 and $44,000 (up to 50% of your benefits may be taxable)
  • More than $44,000 (up to 85% of your benefits may be taxable)
  • You are married, and you file a separate tax return.

Your combined income equals your adjusted gross income plus any non-taxable interest earned, plus one-half of your Social Security benefits. 

 

When Should You Start Taking Your Social Security Retirement Income Benefits?

There is no single best answer for when to start receiving Social Security benefits. What works for one person or couple may not be the right strategy for another. Because of that, before you move forward with filing for these benefits, it is recommended that you first discuss your objectives, as well as your income options, with a financial advisor who understands the Social Security system.

 

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