3 Methods to Get the Most Out of Social Security

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. Individuals looking to maximize their Social Security benefits over their lifetimes should be aware of a few key strategies. Joining me to discuss some of them is Andrew Salata. He is a public affairs specialist with the Social Security Administration.

Andrew, thank you so much for being here.

Andrew Salata: You are welcome and thank you for inviting me. I'm looking forward to just giving a little bit of information about some retirement options.

Benz: Let's discuss the timing strategy. If you are nearing retirement you have really three key options: You can take Social Security as soon as you are eligible, you can wait until your full retirement age, or you can wait until age 70.

Let's start by talking about age 62 what the trade-offs are if you do choose to take Social Security as you soon as you are able to?

Salata: Yeah, as you were mentioning the 62 full retirement age, and age 70 are the choices that you usually see on your Social Security statements. They're the ones you can request online from our website.

But with age 62, one of the things to remember about is, although you are receiving benefits earlier up to about 48 months earlier, you are going to have a permanent reduction of about 25%. So your Social Security check would be about 75% of your benefit, and even once you reach those other milestone ages it still remains at that rate.

Benz: Full retirement age then is waiting until I'm 66, and that number is edging up. The younger you are, the higher your full retirement age will be. Let's talk about what sort of benefit you receive at that point?

Salata: For the ones that we're seeing now, who are born between 1943 and going up to 1954, they have a full retirement age of 66. Once we pass 1954, we add two months to each year, so once we get to 1960, the full retirement age is 67. So, 1960 and above we have that age 67, and that's where it's 100% of the benefit.

So, an example that I use is, if you had averaged about $60,000 a year over your lifetime, so about $5,000 a month, you'd receive a little over $2,000 from Social Security or above 40%, so that would be that 100% of your benefit.

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Benz: Now, waiting to 70 you can increase your benefit even more. Let's talk about how much you can lift your benefit if you are able to wait those several more years?

Salata: So, if you do wait until age 70 or if you delay your retirement, for each year you delay your retirement it's an 8% extra credit for delaying it. So it actually breaks down to a monthly fraction. So, we don't really look at just a year at any point, it's always how many months earlier or how many months later.

But if you did wait to age 70, then you have 132% of your benefit. And if we really want to take a look at the numbers, I was using like $2,010 as an average benefit rate at 100% for someone who earned about $60,000 a year over your lifetime, it's about $1,507 at 62 versus $2,653 at age 70. So, it's almost double it if you are really looking at or at least it's a good significant jump. And with a majority of us living well into our 80s with 1 in 4 65-year-olds now living to age 90, looking at that longevity part sometimes is more important than just benefiting sooner.

Benz: And you had noted that this isn't just a benefit for you, the recipient, it could also have some beneficial effects for your survivors. Let's talk about that, that if you do wait longer, it could improve things for your whole family.

Salata: That's a good point to look at because with Social Security benefits we do have survivor benefits; it's one of the benefits that was added on right away when we started paying out benefits. And it goes to the surviving spouse, but it can also go to family members like children.

What we do look at is for surviving spouses to receive the higher of the two benefits, whether it could be their own retirement work or a spouse who had passed on. And if it's the higher wage earner, it could be a higher benefit. However, if you take your own retirement early, you are going to reduce your benefit, which will also reduce what surviving family members can receive later.

So one of the impacts of looking at it is, again, when we talk about longevities and lifetimes, you may be looking at your own history or health history, but you also may have to look at if you are married, if you have the surviving spouse that may live longer, how your choice may impact that.

Benz: So, you brought with you three strategies that people might think about to maximize their lifetime benefit, and I'd like to talk about a few of them here. The do-over strategy is one, and I know people thought that it was  maybe gotten rid-of, that it had gone away altogether. It hasn't really, but it has been scaled back from what it once was. Let's talk about how a do-over works?

Salata: A do-over is basically you'd take your benefits either early or at whatever age or point you decided to take them, and then you were to return all the money to reset it at a later amount. Previously, there was no restriction, you could have taken the benefit at 62, waited until age 70, paid back eight years of benefits, and then receive that 132%.

Now, we've restricted it to just within 12 months from the date you are receiving benefits or the month you are eligible for the benefits because the do-over for Social Security always was you decided to retire and you found out, "Oh, maybe I'd like to work a little longer. [It isn't time] for me [to retire], or I'm not ready for it." So, this won't restrict you from having that lower benefit as you go back to work.

By using a do-over as a way of resetting your annuity, which could be dangerous because if you may have taken it at 62 always having that plan of repaying it later, but you didn't make it to that later date, you now have restricted the benefits to the surviving family. So that's why we changed it to keep it at just within a 12-month period, so you still have that opportunity to change your mind, but now you don't have a long time to make that decision.

Benz: Right. You've got to decide within that one-year period. Another strategy is called voluntary suspension. Now, is that the same as we sometimes hear about file and suspend? Is that the same general idea?

Salata: Correct. You can always voluntarily suspend receiving Social Security benefits. And the file and suspend method, when you are at your full retirement age and this is when it will work--so, currently if you are 66, your full retirement age you can file for retirement benefits but immediately say "No, I don't want to take the monetary benefit."--what this allows is if you have a spouse that's at least at retirement age of 62 or older, or you have children under the age of 18 in the household or a spouse at any age with children under age 16, there's quite a bit of ways that we can pay family on your record that would allow us to pay out the benefits.

So to use that $2,010 a monthly figure, there would be about another $1,500 or so that we could pay out to the family, which could be split amongst a spouse over 62 and a child under age 18. Whereas we could pay that $1,500 to two people and save your $2,000 amount until you are age 70 when you can get the $2,658.

Benz: So the basic idea of filing and suspending is that you file, start your spouse's benefits, suspend your own benefits, and continue on with an eye toward retiring later on?

Salata: Correct. Yes, because at full retirement age you can earn as much as you want, so you can even still work and it wouldn't affect that suspended benefit we're paying out to the spouse. And one of the best ways to do that is, if you go to socialsecurity.gov and you file a retirement application, just in our remarks of the application you can wish to state, "I want to suspend my payments," and at that point your spouse can also file their spouse application right after you. And we'd be able to take care of all of that from the comfort of your own home.

Benz: So the last strategy, you call pick and choose, and it's another strategy, especially for spouses to maximize their lifetime benefits. Let's talk about how that works?

Salata: In this situation it would be where you are at your full retirement age again because for Social Security applications, whenever you file an application for Social Security benefits, that application covers all the benefits that are payable to you. So you normally would choose the higher of the amount, the more beneficial one.

In this case at full retirement age you may choose a lesser amount, you may choose a spousal benefit, because the spousal benefit is only 50% of the workers amount. But what that allows you to do, if you just take a spousal benefit, which may be lower than your own retirement, you have not taken your retirement benefits, so again we'll have that added delayed credit. So at age 70 you can switch from the spousal benefit to your age 70 [benefit] with that 132% [payout].

The only other thing that we would have to look at is, you would have to be at least full retirement age for it, and you'd have to have a spouse that's at least retirement age and has actually filed for those benefits, as well. So if the spouse had to file or if the spouse is receiving any other Social Security benefit for any reason, then there is spousal benefit involved.

Benz: So, if I wanted to model out some of these possibilities, look at my own spouse's and my Social Security possibilities, what sorts of resources does the Social Security Administration website have to help me figure out some of the stuff?

Salata: Well, when you go to our website, I guess the best way to do is if you just click on our Retirement tab. It will be along the top side of [the screen], and it's right by My Social Security tab, which gives you a little bit more account access. But on the Retirement tab, you have a Retirement Planner link, and it kind of goes through all these scenarios that I was talking about. There's a link for withdrawing a benefit or picking a benefit, such as a spousal benefit over your own.

But one of the best tools that we have is the Retirement Estimator. The Retirement Estimator will give you the same figures we talked about at the beginning, age 62, full retirement age, and age 70, but it will also create different scenarios. So, if you are stopping work or if you want to take a benefit at, say, 63 because it's not just those years, it could be any combination in between.

Benz: So it's not like 62, 66, 70, you can actually pick up a little bit between 62 and 66, if you start at 63 or 64?

Salata: Yes. We basically do it by however many months earlier or however many months after 66, so that's the basis. So, you are not just stuck with a birth date, as well; it could be any 63.5. But the Retirement Estimator lets you create some scenarios for yourself, and then, of course, you would have to do that with your spouse, as well.

One of the other things to do is, on our Social Security website if you create that My Social Security account, you have your statement online. We always do suggest everyone to create that account because you get to see your personalized statement, which gives you those figures plus your earnings record, and it also gives you those survivor figures that I was talking about, if you were to pass away what your family may receive.

Benz: Andrew, thank you so much for being here. I know it's a complicated topic, but we appreciate you shedding some light on it.

Salata: Well, thank you, and I hope everyone would be able to take a chance to visit our Retirement Planner page and get a little bit more of their own information and get that planning done early.

Benz: Thank you, Andrew.

Salata: Thank you.