If you aren’t reading this article, you must be very, very rich already. For the rest of us, this is must-reading.
Whenever people take a trip to a casino, they always bone up on their strategy on how they’re going to be beat the house. If they’re playing blackjack, some will buy a book on the best strategies they can employ to win the most amount of money. When these folks come to Vegas and they’re paying for a meal or buffet, if they give the cashier a $100 bill, they’re expecting change. After all, it’s their money, they wouldn’t think about giving a casino their money that they’re entitled to get back. So there it is, people follow strategies to try and maximize what they earn and they would never leave on the table money that belongs to them.
Then why do Americans do that all the time when it comes to Social Security?
Millions of people are ignoring what opportunities they have to maximize what they get in Social Security by either ignorance or lack of understanding. With many people having saved little throughout the course of their lifetime in their 401(k) or in their bank accounts, Social Security is going to be an important part of their retirement income.
When the No.1 filing age for Social Security continues to be 62, the experts say that shows most people aren’t that interested in hearing how to get more money by waiting until they’re 66 or 70. Why is that? The experts say one reason is people need the money because they lost their jobs or because of the physical nature of their work forced them to retire at 62. Some pick that date, however, because they think they’re supposed to retire at 62 because they’ve worked hard their entire life.
“I think the other half is misinformation,” says Andy Landis, author of Social Security: The Inside Story, a series started in 1993. “I see this all of the time. All the comments that come in about I wanted to get mine at 62 before it went broke or before I died.”
For those in their 60s, their life expectancy is close to 20 years, which doesn’t seem to make a lot of sense that people rush and take less than they otherwise should.
“The odds are you’re going to live long enough to make it worthwhile to postpone Social Security and Social Security has full funding until 2033 and so it’s not going to go broke in the next two years,” Landis says. “I think it’s misguided behavior to say I got to take it now before it goes broke or before I die. The odds are you’re going to get more money by waiting.”
In his talks and seminars that he gives on Social Security, Landis says he will run into many people who say they just need the income. It’s hard to argue with people who give that as their reason because their strategies are limited, he says. “It would be great if they can find a part-time job that would pay as much as their Social Security, but even though they have a part time job, they may still may need more income,” Landis says. “They have to pay their bills. I can’t argue with that. For the average person, that’s what it’s there for, a retirement security. Go for it if you need it.”
The problem is those who take it at age 62 are getting 75 percent of what they would have earned at age 66, the full retirement age. By waiting to 66, they’re getting 33 percent more money and by waiting until 70 you’re getting 76 percent more. For those who don’t need to rush and take it at 62, there are ways to maximize what you earn in Social Security and here are the best ways to do it:
THOSE ON SOCIAL SECURITY AT 62 AND SUSPENDING AT 66
For those who took their Social Security at 62 and are having regrets for having done so or their personal circumstances have changed and they can wait to take benefits, they can suspend their payments at 66 and wait until age 70 to start picking them up again when it’s the equivalent in payments if you had waited until 66 in the first place. It’s actually considered 99 percent of your full retirement Social Security benefit. By suspending and waiting four years, that wipes away that penalty for early filing.
Other than suspending at 66, people have a year after they file for Social Security to change their mind and it’s like they never filed. That happens often when many people get good jobs after they filed for Social Security. If you get a job and the pay is less than $15,720 a year, you’re not going to lose any of your Social Security benefits even though you’re required to report it to Social Security. If it’s over that amount, some of it will be taken away and you’re likely to get some of it, the experts say.
When you turn 66, Landis says, there’s a computation where they subtract the months that you had your payments withheld because of work. “Let’s say they take six of my payments away because I got a nice job and when I’m 66 they recompute may payment and it’s like they moved my application date six months later and therefore I get a payment that’s six months higher,” Landis says. “It’s not huge, but it would be a three percent increase in Social Security if they took six of my payments away. Over the years, if I’m working on or off or steady and they’re taking the rest of my payments away, I get a big fat raise when I’m 66.”
That’s when Social Security stops penalizing people who are working and taking Social Security.
WAITING UNTIL 66 or 70 to START SOCIAL SECURITY
For people who start their benefits at 62, the experts say that while it’s 75 percent of your full retirement benefit, the reduction is actually more than that. The reason is if you waited until 66, the monthly benefit would increase by 33 percent. “It’s a 33 percent increase above the inflation rate guaranteed by the US government and with survivor benefits and cost of living protection,” Landis says. “When you throw all of that together and you look at it as an investment, that’s a pretty good guaranteed deal compared to what I might get in the market.”
For those who are debating about taking Social Security at 66 and opt for 70 instead, if they were set to earn $2,000 a month at 66, which is slightly above average, that would have grown to $2,640 a month at age 70. “I don’t know how often you have gotten a $600 a month raise during your career,” Landis says. “That’s a pretty big raise when you think that’s coming for the rest of my life and rest of my spouse’s life and it’s going to go up with inflation and it has tax benefits. That’s a $600 a month raise I might be willing to wait four years to nab. It will take me until 82½ to make it worthwhile so I have to have life expectancy.”
But it’s not just about that person if they’re married. Women tend to live longer than their husbands, and if the husband has higher career earnings than her, she’ll be able to draw from his Social Security benefit if he dies before her.
The experts say the lesson is there’s value added if you’re married and you’re the principal earner. If you use the example of the $640 extra a month earned by waiting from 66 to 70 to take the benefit and the husband dies at 85, which is about three years longer than expected. That’s $23,000 more that the husband earned than he would have by taking the benefit at 66. If the wife, who in this example is five years younger than the husband, lives to her expectancy of 91, that’s an extra $61,000 for a total of more than $84,000 by waiting until 70. That’s even greater for someone waiting to take Social Security at 70 instead of 62, which is a long time for many people to wait. For someone who’s full benefit is $2,000 a month at 66, it translates to $1,500 a month at age 62. By waiting until 70, that benefit increases by $1,140 a month. For a single person who lives to 85½, that translates into $40,000 extra by waiting those eight years and with the wife living until 91, as in the previous example, that’s an extra $109,000 for the couple.“Everyone wants to get their Social Security before they die,” Landis says. “I don’t want to die without getting it. This is a way to stick it to the government for a $100,000 extra by postponing your Social Security. That might motivate some people to wait.”
Experts say the other option for people to consider is for those who own their own home, to use the equity in their home as part of a reverse mortgage to generate monthly income. That’s one effective way to bridge the gap of needed income while your Social Security benefits grow by waiting to 66 and 70. “That’s an interesting strategy,” Landis says. “If I have equity in the house and I can take a reverse mortgage, that’s one way to bridge to 70 or 66 or whatever you can do. That’s not a bad way.”
FILE AND SUSPEND
The experts says there’s much more awareness about filing and suspending these days than there was a couple of years ago because of all of the articles written on the subject. The problem is that awareness has been limited to a small group of people are the most active in learning about Social Security in the first place.
If your goal is to wait until 70 to get the maximum benefit, it doesn’t mean you have to wait until that age to start benefiting from Social Security. Starting at age 66, people can suspend their Social Security payment anytime during those four years and allow the benefit to grow by 32 percent by age 70. “If I’m the principal earner in the family and I die, then my spouse gets whatever I was getting. If I wait and get a higher payment that pays me during my lifetime—but also pays her during her lifetime,” Landis says. “I like to say it’s the gift that keeps on giving for two lifetimes.”
What happens is when a couple is working and both have good full-time jobs that pay well and both want to continue to work, neither takes Social Security and they shouldn’t. The reason is Social Security taxes benefits earned above $15,780 if you haven’t yet turned 66. “What I see people leaving on the table is between the ages of 66 to 70 and I have talked to a bunch of those people in the past weeks where they are 67 or 68 and they’ll say I’m waiting until 70 because I like my job,” Landis says. “I’m working and waiting. That’s cool, but did you know your spouse could be getting a payment right now? They’re always blown away by that.”
Landis relayed a story about a couple he came across while giving a seminar in Los Angeles. Both are highly paid professionals who were both turning 66 but decided they would wait to take Social Security until they turned 70 so they could get 132 percent of their benefits. The couple thought that was a great option for them until they learned they were leaving money on the table. One of them could file and suspend and the other could get a spousal payment for the next four years. They contacted the Social Security Administration and learned by taking that payments, that’s an extra $60,000 they wouldn’t have known to have taken.
Both were set to earn $2,500 a month based on their benefit. If one of them takes a 50 percent spousal payment for the next four years, that’s $1,250 a month that will add up to $60,000 plus inflation. “That’s a lot of money. That’s an extreme case because they’re high-income earners,” Landis says.
Even if the Social Security is $1,500, some $1,000 less than the Los Angeles couple, that’s $750 a month and $36,000 for a retirement that people would forgo because they didn’t know any better. “That’s the kind of thing most people still don’t know, but more and more people are getting tuned into,” Landis says. “They say what’s this trick about my spousal payments? They kind of have an idea because they have seen an article or heard from a friend. They don’t have it clear. That’s something that needs to be communicated to people working past 66: You can still get Social Security and still get your age 70 payment coming in.” The spouse has to be at least 62 to start the payment. If the spouse is working, they’re subject to the penalty of earning too much. For those who earn too much, Social Security would make them file under their own benefits if the spouse is between 62 and 66. It works best for a non-working spouse.
KEEP WORKING BEFORE TAKING BENEFIT
When it comes for people trying to figure out that bridge to fill in the gap between 66 and 70 when people can maximize their Social Security benefits, Landis jokes that the best way is to be rich, but for most people it’s enough to just have a job.
“The best way for regular people is to work an extra couple of years and they’ll moan and groan and say I don’t want to and I got laid off,” Landis says. “If they have a job that they can handle for the next few years, that’s the No.1 way to increase retirement security. It’s not just Social Security.”
By working, you increase your Social Security benefit because it’s based on the highest 35 years of your earnings and in many cases people make the most money in their lifetime prior to retirement. “Your Social Security will go up and you’re not draining savings so your savings will be higher,” Landis says. “Hopefully if you’re working you’re saving in your 401(k) plan or IRA or whatever you can do so you’re increasing your savings instead of drawing them down. If there’s a pension at work and that’s iffy, your pension at work with higher earnings should give you a higher pension, too. There are so many ways you’re fattening up the retirement picture by working even if it’s a few more years. If you can swing it, work an extra year or two or five. It’s different for everybody, but do that math for yourself and you’ll probably find it’s not just Social Security but all kinds of ways you’re making yourself financially better off.”
WORK AND TAKE SOCIAL SECURITY
If you opt to take Social Security while working under the age of 66, then if you earn more than $15,720, for every $2 you earn over that limit, the government takes $1 out of your Social Security.
“I’m still coming out ahead even if I earn more than that limit because they’re only taking half of the dollars over the limit away from my Social Security,” Landis says. “I’d have to earn a lot of money before they take away all 12 of my Social Security payments. It’s usually around $50,000 or so. I could have a pretty good full time job making around $40,000 and still get some of my Social Security for the year to supplement my income. Even for those who are under 66 who are working, sometimes it makes sense to take the Social Security early.” The month people turn 66 Social Security has no penalty for any earnings, and people can have their full paychecks plus Social Security. “A lot of people start their Social Security at 66 even if they’re working,” Landis says.
Landis says he knows a person who was working at 66 when he took his Social Security at his 100 percent benefit and took the money from the government and banked it. He had his paycheck coming in and at 68 he retired. For the two previous years he started his benefits, he earned $2,000 a month and banked $50,000 he used a down payment for a retirement home, Landis says. “That’s one way to use it and or you could raise your lifestyle a little bit or you can use it as a supplement because your paycheck isn’t as high as it used to be,” Landis says. “Maybe you’re slowing down or gone to part time or switched jobs because of job loss.”
Landis says most people shouldn’t start their Social Security at 66 because they know there isn’t a penalty for not working. “These people aren’t fully aware of the rules of what can happen after 66 or they may not have done the math or maybe they’re of the mindset that ‘I don’t know how long I’m going to live and I just want my Social Security to get going’,” Landis says.
You can go to www.ssa.gov to create and account and learn how much your monthly Social Security benefit is going to be and plan their strategy accordingly.