Getting the Most from Your Social Security Retirement Benefits

This article written by Ron Valpey originally appeared in the February 16, 2016 issue of the Concord Monitor and is updated yearly to reflect accurate information.

Social Security is the single most important source of income for millions of retirees yet deciding when to draw can be perplexing. How can you get the most from your Social Security benefits?

To be eligible for Social Security retirement benefits a worker needs to earn 40 Social Security credits (fewer credits if born before 1929). In 2017, a credit will be received for every $1,300 earned. A maximum of four credits can be earned in one year. Most workers can earn enough Social Security credits in 10 years to become eligible for retirement benefits. The retirement benefit is based on the worker’s 35 highest years of income, adjusted for inflation.

If you are eligible to receive Social Security retirement benefits as the primary recipient you can begin drawing an early, but permanently reduced retirement benefit anytime between age 62 and your full retirement age. The full retirement age is 65 for those born before 1938 and gradually increases to 67 for those born in 1960 or later. At your full retirement age, you can receive 100% of your benefit with no reduction.

If you delay receiving your benefit until after your full retirement age and up until age 70, you can receive a permanently increased benefit. For each year of delay from your full retirement age until 70 you can see up to an 8% increase in the benefit amount. Depending on your full retirement age, an age 62 benefit of $1,500 per month delayed until 70 could grow to over $2,600 per month. There is no advantage in delaying the start of your benefit after age 70 since the increase ceases at 70.

There are several factors to take into consideration in deciding when to draw.

Do you need the money? If you just plain need the income, you may have no choice but to draw early.

How long will you live? If you don’t live past 77, the total of payments will be more if the benefit is drawn at 62. If you live past 81, the total of payments will be more if the benefit is delayed until 70.

Are you still working? There are two considerations here: the earnings limit and taxation.

Before full retirement age, if you draw and you are still working and earning more than $16,920 (for 2017), one dollar in benefits will be withheld for every $2 in earnings above the limit. In the year of your full retirement age, and only before your birthday month, there will be a reduction of one dollar for every $3 in earnings above $44,880 (for 2017). During or after your birthday month there is no benefit reduction.

The reduction only applies as long as you are over the earnings limit and before your full retirement age. The Senior Citizen’s Freedom to Work Act of 2000 eliminated the earnings limit reduction at or beyond your full retirement age, you can still work and receive your full benefit without any benefit reduction. Keep in mind too, the reduction isn’t nearly as bad as it sounds, you actually get credit for the benefit withheld resulting in a higher benefit later.

Regardless of when you draw, your benefit may be taxable. The tax, or lack of, is based on somewhat complicated special step-rate thresholds. If you are going to work or have other income sources and draw a benefit, carefully coordinate the tax implications with your tax advisor.

The final consideration is that drawing early can also cause a permanent reduction in the benefits paid to your spouse since the spousal benefit is based on your benefit. If your spouse is taking his or her own benefit rather than opting for the spousal benefit, your benefit timing may not be relevant.

So if you need the money, are in poor health or you are not working, you may want to draw early. If you are in good health, have assets you can draw on or you are still earning a good income, you may want to wait at least until your full retirement age. If longevity runs in the family, you have substantial assets or you are earning a high income, you might want to consider waiting until you stop working or age 70 to draw. And since you can draw anytime between 62 and 70, you can always delay initially and simply reassess as you go – drawing when you decide the time is right.

For additional information, a straightforward brochure on retirement benefits put out by the Social Security Administration can be found at www.ssa.gov/pubs/EN-05-10035.pdf. Social Security statements are now being mailed every fifth birthday (…35, 40, 45…) until 60 and then annually but you can get your updated statement anytime by visiting www.ssa.gov/myaccount/. The Social Security Administration can be reached toll free at 1-800-772-1213 or online at www.ssa.gov. If you prefer an in-person visit, there are numerous offices located throughout New England.