The tail end of the baby boomers turn 62 this year and many are seriously contemplating retirement. As a boomer you’re facing a myriad of questions revolving around the timing of retirement and when you should claim your Social Security benefits. At 62, you have the opportunity to claim early benefits, but that might not be the best strategy, especially if you are still working or plan to live a long life.
Of course, we don’t know how long we’ll live, but we do know that we don’t want to outlive our money. One of the best ways to hedge against a long life is to maximize our Social Security benefits. Think of it as Longevity Insurance, a monthly annuity that we can’t outlive. So with that in mind, here are three tips to help you maximize your Social Security benefits in retirement.
Go back to work to fill in gap years with earnings
Social Security benefits are based on the income you’ve earned throughout your career. If you took some time off to raise a family, or care for elderly parents or other family members, then you may have an earnings gap in your work history. Social Security payments are based on your highest 35 years of income. If you don’t have 35 years of earned income, then zeros will be used to fill those gap years.
If you have the desire to go back to work and you can replace zero earning years with positive earnings, that will add additional income to your benefits record and increase the amount of benefits that you will receive over your lifetime. Remember, if you’re working, you will still need to pay into Social Security.
Wait until Full Retirement Age (FRA), or beyond
If you are still working at age 62 and you earn more than $18,240 a year in 2020, then you will be subject to the Earnings Limit established by the Social Security Administration (SSA). After the $18,240, you’ll lose $1 of annual benefits for every $2 you make above the threshold. The earnings limit applies until you reach FRA. In the year you finally reach full retirement age, and up to the month you reach FRA, Social Security will deduct $1 for every $3 you earn that is over the earnings limit, for the year you reach FRA, the earnings limit is higher. For 2020, the earnings limit is $48,600. During the year you reach FRA, the SSA only counts earnings that you receive before the month you reach FRA.
Note that these dollars are not lost forever; instead, your Social Security benefit will be increased to account for them after you reach full retirement age.
Delay your benefits
If you don’t need the current income stream from Social Security and you can delay your benefits beyond age 62, then consider waiting. If you claim your benefits at age 62, rather than waiting until your full retirement age (FRA), then you’ll receive a reduction of up to 30% in your monthly benefits. You can maximize your monthly income from Social Security by waiting until after FRA to claim your benefits. For each year that you delay beyond FRA, you’ll receive an 8% increase in monthly benefits, until age 70. You do not receive any additional delayed benefits beyond age 70, so make sure you claim your benefits on your Happy 70th Birthday!
If each of these strategies is employed correctly, you will have made the most of the benefit derived from your years of hard work and contribution to the Social Security system, and be able to work your plan around the underpinning income this represents. See your wealth manager for questions or additional specific details regarding Social Security.