To Maximize Your Social Security Benefits, First Do Your Homework

It has been 81 years since the first-ever Social Security check was issued to Miss Ida May Fuller, a retired teacher and legal secretary, in the amount of $22.54.

According to the Social Security Administration, she paid into the program for three years, for a total of $24.75, before retiring at 65. And during her lifetime (she lived to 100), she collected $22,888.92 in benefits.

I do not think anyone these days expects to get that kind of return on what they have paid into Social Security during their working years. But we all certainly want to get the most we can. That is just as important now as it was in Ida May’s day.

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Social Security was never meant to be the sole source of financial support for workers after they retired. But for many, it’s a hefty chunk of their income. That will likely remain true as more and more workers lose employer-provided pensions that have long been another reliable income source. As Americans shift from the old three-legged stool metaphor for retirement income (Social Security, personal savings and a pension) to a two-legged stool (with only Social Security and personal savings to stand on), they are going to want those two legs to be as sturdy as possible.

Here are some questions you will want to consider as you work to maximize your Social Security benefit amount:

When should I apply to receive Social Security?

The goal here, of course, is to make a decision that will produce the most income over your lifetime and, if you’re married, your spouse’s lifetime.

You can take your benefits as early as age 62, but if you do, your payments will be permanently reduced. You’ll get 25% to 30% less than what you’d receive at your full retirement age (FRA), which, based on when you were born, is somewhere between 66 and 67. If, on the other hand, you wait until after your FRA to file, you’ll receive delayed retirement credits each month (8% each year) until you turn 70, which is the latest you can apply.

Social Security is designed to be “actuarially neutral,” which means you are supposed to get about the same amount of money no matter what age you file. If you file at 62 and live to 85, you will get a smaller check but for a longer time. If you file at 70 and live to 85, you will get a bigger check for a shorter time. Which is why many soon-to-be retirees calculate their break-even age — the age when waiting would mean a higher lifetime payout. Based on that, there are two basic rules of thumb about claiming:

• If you expect to have a long life, it might be worth delaying your filing date.
• But if you need the income ASAP, or if — based on your own health or family history — you do not expect a long retirement, it may make sense to tap this income source sooner rather than later.

What are my spousal planning options?

Because Social Security has thousands of regulations, many of which apply specifically to those who are married, filing decisions can be much more complicated for couples than individuals.

Probably the biggest factor to be aware of is that when one spouse dies, the lower of a couple’s two Social Security checks goes away and the surviving spouse receives only the higher payment from then on. So, if you are the higher earner, you may wish to delay claiming as long as possible to grow a bigger benefit for you or your spouse to live on.

It’s also important to keep in mind that the lower-earner’s “spousal benefit” — which is based on the higher earner’s record — might offer a bigger check than his or her own record. A spousal benefit can be as much as half of the higher earner’s benefit amount. So, for example, if the higher earner’s benefit is $2,000 a month, the lower earner’s spousal benefit could be $1,000. If the lower earner’s own benefit is, say, $500 a month, taking the spousal benefit would add up to $6,000 more per year. And over a 30-year retirement, it is a $180,000 shift in income.

These are just two of the many strategies those who are or have been married should consider when making their filing decision.

Survivor Benefits

Widows and widowers and those who are divorced also have options that apply specifically to them and could affect the age at which they may receive benefits and how much they’ll get.

For example, the Social Security Administration reports that if you are receiving benefits yourself, but your Social Security check is less than your deceased spouse’s, then you are eligible to switch to their benefit. As a survivor, you can also claim benefits as early as age 60, and as early as 50 if you are disabled.

The administration further reports that if you are a divorced spouse of a worker who dies, and your marriage lasted at least 10 years, you are eligible for the same benefits as a widow or widower.

Many Social Security services are available online and by phone. If you have a "dire need situation" regarding your benefits or need to update information attached to your Social Security number, such as your name or citizenship status, you may be able to schedule an in-person appointment.

Will I have to pay taxes on my benefits?

Depending on what your “combined income” is each year, you may end up having to pay federal taxes — and perhaps even state and local taxes — on a portion of your benefits.

To calculate your combined income (also called provisional income), add your adjusted gross income (including pension payouts and retirement account withdrawals but not counting Social Security benefits) plus nontaxable interest income plus half your Social Security benefits. Up to 50% of your benefits may be taxed by the IRS if the amount you come up with is $25,000 to $34,000 as an individual or $32,000 to $44,000 as a married couple filing jointly. And up to 85% of your benefits may be taxed if your income is above that threshold.

This is where proactive planning can really help your bottom line — but it means keeping a close eye on how all your retirement income streams are taxed. For example, instead of taking withdrawals from a tax-deferred retirement account, you may want to convert that money to a Roth. Roth withdrawals are not taxed and are not counted toward combined income.

What if I change my mind after I have filed for benefits?

You cannot just switch your benefits on and off whenever you like. If you decide you do not want to receive your benefits as originally planned — perhaps because you want or need to go back to work — you have one year (12 months) to withdraw your claim. But you will have to repay all the money you received to that point. You can ask Social Security to resume payments at any time until you turn 70. If you have not done it by then, Social Security will automatically reinstate your benefits in the higher amount.

If you choose to work while taking your benefits, there are certain “earnings tests” you will have to deal with if you have not yet reached your FRA. In 2021, you can earn up to $18,960. If you go over that amount, though, Social Security will withhold $1 in benefits for every $2 you earn. A part-time gig might fulfill your needs without pushing you over the limit, but anything beyond that could get complicated.

With so many rules to wrap your head around, figuring out how to maximize your Social Security benefits can be a puzzling process. Just remember: It is also one of the most critical decisions you will make regarding your retirement. If you want to be sure you are getting the most money possible, an experienced financial adviser — a retirement specialist — can help.

If you cannot or do not want to go to a pro, do your homework. And do not make decisions based on what others are doing. Your choices should be determined by your family’s needs and your overall retirement plan.

Kim Franke-Folstad contributed to this article.