Figuring out how to get the most out of Social Security when you finally retire is a little like playing chess: Understanding the strategy is the only way to win.
Here are three things that aren't obvious about the Social Security system that will help you get the most out of Uncle Sam's retirement program:
Claim on Your Ex-Spouse's Account. First of all, don't worry -- no Social Security benefits are changed, reduced or penalized by an ex-spouse's claim, but it is true that the former Dear Spouse could be worth more to you dead than alive. Let me and Social Security explain: To qualify to play this game, you have to have been married for 10 years and you can't be remarried. But if subsequent marriages last 10 years and end in divorce, all is forgiven and you are back to being eligible again.If you have a couple of ex-spouses, you can pick the best benefit among your own and theirs. If you wait until full retirement age, 66 for most people nearing retirement, you can claim half your ex's Social Security and allow your own account to increase by 8% a year until you reach age 70. Then you can drop your ex-spouse's account and take the higher amount available to you on your own. When your ex-spouse dies, you'll be able to choose again between 100% of your late ex-spouses' benefit or 100% of your own benefit. Good deal, huh?
Don't Be in a Rush to Collect. According to Social Security, about 72% of Social Security recipients collect their benefits before they reach full retirement age, which for most of us is between 66 and 67 years of age. A $1,000 benefit payable at 66 would be reduced to $750 if the recipient opted to take it at 62, and the spousal benefit, which would be $500 at 66, is reduced to $350 at 62. Not only do people who file early take a permanent haircut on their benefits, but also if they work plus collect Social Security and earn more than $14,160, they lose $1 in benefits for every $2 they make. Once they reach full retirement age, they can earn whatever they want, and their Social Security benefit will not be reduced. Income from investments, pensions and rental income don't count. But if you have to get a job to make ends meet, expect to pay Uncle Sam back.
You and Your Spouse are Partners. Both halves of a couple should work together to get as much from Social Security as you can. Consider this illustration from Prudential Financial. If both halves of a working couple collect Social Security at 62 and he dies at 82, they'll initially earn $20,700 combined. Upon his death, considering average cost-of-living adjustments, she'll receive $26,172 per year.
If she collects $12,000 at age 62 and he delays collecting Social Security until he is age 70, together they'll initially collect $38,172. If he dies at age 82, she'll continue to collect $36,444, plus future cost-of-living increases. Obviously, this works the other way as well, but most women outlive their husbands.
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