Retirement is the epitome of the American Dream for many. Working hard, saving, and settling into a long and fulfilling retirement is the goal of millions. To make sure this ideal becomes a reality, it’s important to have a smart plan in place, and to stick with it. Planning is a must in two specific areas: savings and investment during your working career, and income maximization during retirement. For most people, Social Security will play a big role in providing retirement income, which means that Social Security maximization is one of the most important plans you can create.
Before you begin your plan, you should spend some time thinking about what it means to maximize your Social Security income. It may sound obvious, but depending on your goals and your actual lifespan, Social Security Maximization can mean different things to different people. When it comes time to claiming Social Security, you have three options:
Social Security Maximization means that you’ve received the most benefit from Social Security before you die. This can be looked at in one of two ways:
If you want to maximize the number of years you receive Social Security (a longer retirement), then you will want to consider taking Social Security early. By taking this simple step, you can guarantee yourself at least four years of extra payments (and maybe five) compared to waiting until you hit Full Retirement Age. This is especially true if you think that you might have a shorter life expectancy than the average American (perhaps due to underlying medical conditions and family history). If you die early, you might only have received Social Security payments for a few short years. Taking Social Security early is one way to guarantee that you receive as much benefit as possible during your lifetime.
To maximize the total amount of money you receive during your lifetime, you’ll have to make an estimate of your life expectancy. For example, if you take Social Security at Full Retirement Age of 67, you would have to live to be at least 78 before your total Social Security payments would exceed the amount you’d receive if you took Social Security early, at age 62. On the other hand, delaying Social Security (discussed below) can give you much more lifetime income if you end up living a long life.
As a part of your Social Security Maximization strategy, keep in mind how your Social Security benefits are calculated in the first place. Your Social Security retirement benefit is based on the average of your highest 35 years of income. What this means to you is that the higher your income, the higher your retirement benefits will be. To the extent that you can manipulate your income (whether you’re self-employed, or if you can negotiate your mix of salary or other non-wage compensation), you’ll want to take as much salary as possible. This will push your average earnings up, which will increase your Social Security benefit. Remember that the maximum wage considered is $142,800, so there’s no need to take income over that amount if you have granular control over your cash flow.
Since your benefit is based on your 35 highest earning years, the longer you work, the higher your Social Security benefit will likely be. Most people earn their highest salaries later in life. By working as long as possible, your higher-earning years can cancel out years where you didn’t earn as much money, like when you were still in school or otherwise working only part-time. Plus, wages have risen substantially over time – the average annual wages for Social Security-eligible Americans was $12,513 in 1980, but had grown to $54,099 by 2019.
It is true that Social Security adjusts wages for inflation automatically. However, this adjustment won’t be to your full benefit for two reasons. One, the Social Security Administration uses a measure of inflation that has tended to under-count the effects of inflation. Second, inflation-adjusted wages from earlier in your career are still probably less than what you make at the end of your career. So, if you work longer (right up to your Full Retirement Age or beyond), these last few years of earnings can give your Social Security benefit a good boost.
Your Social Security benefit is increased for every month that you delay receiving it beyond Full Retirement Age. The maximum increase is 30%, so if your benefit at Full Retirement Age of 67 was $2,500 per month, it would be $3,250 at age 70. If you can afford to do this, you can take home a lot more Social Security income if you live to be at least 80 years old. If you live to be 90, you’ll be way ahead if you delay your benefits until age 70.
Besides standard Social Security retirement benefits, you might also qualify for certain survivorship benefits, or dependent benefits. If your spouse predeceases you, or if you have dependent children while you receive Social Security, you may qualify for larger benefits. Spousal benefits in particular can help with Social Security maximization when there is a big earnings disparity between spouses during their working years. If you’re divorced, you can claim Social Security based on your ex-spouse’s benefit. If your spouse is deceased, you can receive their benefit if it is larger than your own.
Social Security is a critical component of any retirement plan. You can make your retirement more successful by having a plan for Social Security maximization. Some of the difficult circumstances you’ll need to consider include life expectancy, ability to work to Full Retirement Age or beyond, and how much income you can generate from pension, nest eggs, or other savings. These are important factors for Social Security maximization, so working with an expert can help you make the right decisions, and take the stress out of retirement planning. Call Texas Medicare Advisors today at 512-900-3008 for a free Social Security income consultation.
There are also survivor benefits to consider. The surviving partner will receive either their earned benefit or the deceased’s earned benefit, whichever was higher. To maximize the benefits available to the surviving partner, have the higher earner delay claiming their benefits until full retirement age or age 70 if possible.
To learn more about how to maximize Social Security benefits, give us a call at 512-900-3008.
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