Strategies to maximize your Social Security

As you approach age 62, you have a choice to make about when to start taking benefits from Social Security.

You can begin as early as 62, wait until full retirement age (between 65 and 67, depending on when you were born) or delay benefits until age 70.

The earlier benefits begin, the lower they will be — and if you collect benefits and you or your spouse continue to work, they may be reduced even further.

Today, up to 85% of the benefit you collect may be taxed*. If you are forced into retirement, and you may need Social Security to cover your living expenses, you'll welcome having benefits as soon as possible. However, if you have options as to how long you work and your goal is to maximize your Social Security benefits, the decision as to when to begin benefits is anything but straight forward.

*Source: SSA.gov

Consider the following as you weigh your alternatives:

Gender and marital status matter*

Deciding when to begin benefits is complicated by both gender and marital status:

Single women generally do better to wait as long as they can. Women tend to live longer than men, so they are more likely to benefit from higher payments taken later.
Single men have a more complicated choice, but generally speaking they should claim as early as possible because of their shorter life expectancies and especially if family medical history points to a shorter life expectancy.
Married couples in which the wife has low or no wages tend to do better to claim benefits for the wife as early as possible and delay benefits as long as possible for the husband.

The reason? Early benefits allow the couple to collect for an extended period of time, while preserving the couple's maximum benefit for the wife. A wife who survives her husband is eligible for 100% of his benefit.

According to research done by the Center for Retirement Research at Boston College, the best formula for the average household was for the wife to claim at age 62 and the husband to claim at age 66.
Married couples in which the wife's wages were closer to the wages of the husband still do better if the wife claims early and the husband delays benefits to age 69.

Breaking even with Social Security

Regardless of whether you choose to receive early benefits from Social Security at age 62, full benefits at ages 65-67 or delay benefits to age 70, the value of the three options is designed to break even — or come out approximately the same — at around age 81. So if you delay benefits and die early, you lose. But if you live past age 81, you win.

If you earn more than $100,000 — more than the maximum amount taxed by Social Security every year — you can look forward to increased benefits as the maximum benefit rises, which may be a reason to delay benefits.

You can also drop off any lower-earning years if you continue to work. Social Security payments are based on the 35 highest-earning years in your career. For every additional year that you work, you get to drop off one of the lower-earning years — maybe from working at a fast food restaurant or bagging groceries as a teenager.

A personal decision

There's no one-size-fits-all solution to the decision about Social Security. However, it's important to weigh the alternatives before you decide. Keep life expectancy in mind: nearly one-third of all women and one fifth of men will live into their 90s*, an age at which you don't want to look back and regret a hasty choice.

* "Why Do Women Claim Social Security Benefits So Early?" Alicia H. Munnell and Mauricio Soto, Center for Retirement Research at Boston College, October 2005.

AARP Financial Inc. does not provide tax advice. Please consult a tax advisor for information pertaining to your particular situation.

The information and content provided herein is general in nature and is for informational purposes only. It is not intended, and should not be construed, as a specific recommendation, or legal, tax or investment advice, or a legal opinion. Individuals should contact their own professional tax or investment advisors or other professionals to help answer questions about specific situations or needs prior to taking any action plan based on this information.

The Financial Advisors are investment adviser representatives of AARP Financial Inc., an investment adviser.

While AARP endorses the services provided by AARP Financial Inc., AARP does not offer financial products or services itself and cannot recommend that you or any specific individual should purchase any particular product or service. AARP Financial Inc. is an investment adviser and a subsidiary of AARP.