Most people are aware that reduced Social Security benefits are available to individuals at age 62 (if they paid into SS for 40 quarters). Most individuals are also aware that full retirement age (FRA) benefits are available to people who are now age 66. However, some people do not know that they can further maximize their checks under certain circumstances.
What are they? Here are a few.
- Wait until age 70. If you wait to collect benefits until age 70, the guaranteed benefit increases by 8% per year between the ages of 66 to 70 (for up to 32%). This means that if you don’t need the income at age 66, it might be wise to hold off. Some thoughts as to when this makes sense? You plan to work until 70. You received an inheritance. You have family longevity on your side. Naturally, the longer you live, the more beneficial this strategy becomes.
- Do-over option. If you decide to take reduced benefits at age 62 and later regret the decision, you can pay back the money you collected and begin from scratch at age 66 (or later) at the FRA rate. Why the heck would someone do that? Maybe a person’s health picture has changed, and he or she now expects to live a longer life?
- File and suspend strategy. In this situation, the primary income earner has reached full retirement age (currently 66) and files for SS benefits. However, he/she wants to wait until age 70 to maximize the amount. He/she immediately suspends the benefit and does not take any checks at all. The secondary income earner, who never collected in the past under his or her own SS benefits, files for spousal benefits at age 66 (spousal benefits are 50% of primary earner’s FRA check). The secondary earner might do this even if his or her check would have been larger. Why? Because at age 70, the secondary earner can then collect the maximized amount under his or her own benefits.
- Hybrid Method. In this situation, the secondary earner takes his or her reduced age 62 benefit and then converts to the 50% spousal benefit at age 66. The secondary earner can convert back to his or her individual Social Security benefit at age 70 (and receive the maximized rate).
Okay, this probably all seems confusing. So what’s the break-even point for the above scenarios? That’s an important question, but the answer differs for each respective situation.
The above options are typically unrealistic for people who need their Social Security benefits as soon as they qualify. However, for other individuals, it might actually work in their favor. Your financial advisor or certified financial planner likely has access to software programs that can run the numbers and help determine if any of the above strategies could be right for you.
