Social Security is an important cornerstone of many retirement income plans. Yet, most Americans aren’t aware of the variety of benefit options and claiming strategies to consider – beyond deciding at what age to begin collecting benefits. This is especially true if you are married, have been divorced or widowed. Because Social Security benefits can account for a significant percentage of your income in retirement, it’s important to educate yourself and evaluate your options before you begin taking your benefits. The difference in various options can amount to tens of thousands of dollars over the course of your lifetime. And, once you’ve made your decision, in most cases it is irreversible.
The first thing to consider is whether you want to begin taking benefits early—as early as age 62—before your “full retirement age” (FRA). FRA is based on the year you were born and is 66 or 67 for most of today’s retirees. You will receive a higher monthly benefit for each month you delay collecting benefits until age 70. The amount you receive when you first retire sets the base for the amount you will receive for the rest of your life.
When considering at what age you want to begin receiving Social Security benefits, you should remember that your retirement may last longer than you think. The average life expectancy for a 65 year old man today is 84 and for a woman 87. This can mean spending 20-30 years in retirement. Social Security benefits, which last as long as you live, can help supplement your personal retirement savings. Everyone’s circumstances are different so you will want to weigh your health and personal circumstances carefully before making any benefit claiming decisions.
Choosing when to begin receiving benefits is just one factor in your decision making process. You also need to be aware of strategies that may help you maximize your Social Security benefits like the “spousal benefit”, which applies to current spouses, widowed spouses and ex-spouses.
As a spouse, you can claim Social Security benefits based on your own earnings record. Alternatively, you can collect a spousal benefit that will provide you up to 50% of the amount of your spouse’s Social Security benefit as calculated at their FRA, depending on when you claim. If you claim spousal benefits before reaching FRA, the Social Security Administration will automatically calculate the higher of the two benefits and that is the amount you will receive.
After you reach full retirement age, you can choose to receive only the spousal benefit, and delay receiving your retirement benefits until a later date, allowing you to potentially receive a higher benefit later based on the effect of delayed retirement credits. Note, you cannot collect a spousal benefit until your spouse files for their own benefit.
If you are a widow or widower you can collect a survivor’s benefit as early as age 60. Once you and your spouse are receiving Social Security benefits, upon the death of your spouse, you will continue to receive the larger of your benefit, or your spouse’s, but not both. Planning for survivorship benefits remains an important consideration for couples who have a significant disparity in ages or health circumstances that may impact life expectancy.
If you are divorced, you may be eligible to receive Social Security benefits based on your ex-spouse’s work record. However, at most, your benefit will be 50% of what your ex-spouse would receive at their full retirement age, if this amount is larger than what you could receive based on your own work record. Other factors that determine your eligibility to collect on an ex-spouse’s record include your ages, how long you were married and your current marital status.
As you can see, there are a number of factors to consider before you begin claiming your Social Security benefits. Because retirement can last longer than you think, the impact of when and how you choose to take your Social Security benefits can be significant. There are many online Social Security calculators that can provide you with a quick view of different scenarios. However it’s important to understand your full retirement plan when considering what Social Security option is best for you. If you prefer some assistance, many professional financial advisors have access to calculators and other planning tools. Regardless of which route you prefer, you worked hard and paid into the program for decades, so why not try to make the most of your benefits?
This article was written by Wells Fargo Advisors and provided courtesy of Katie Cuppia Phifer, CERTIFIED FINANCIAL PLANNER™ and Financial Advisor at 211 Scotts Street, Beaufort, SC 29902.
Investments in securities and insurance products are: NOTFDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE. Wells Fargo Advisors, LLC, Member SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company.
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