I?m always looking for ways to increase my income, so a friend recently told me about a book he was reading. Claimed the book had strategies on how to change the amount of Social Security benefits I could receive. He didn?t realize I?d already started drawing that seven years ago, so there?s not much I can do now. But it did set me to thinking about how people are living longer and working longer. Is this new trend affecting Social Security retirement benefits? And if so, what are some ways to increase your Social Security benefits?
The share of people who collect Social Security early at age 62 (the earliest you can claim benefits) is declining, according to a report from the Center for Retirement Research at Boston College. About 36 percent of men turning 62 in 2013 claimed Social Security benefits that year, down from 52 percent in 1985; the share of women fell to roughly 40 percent from 64 percent over the same time period. according to the report.
People are finally realizing that this?one of the easiest and most reliable ways to step-up retirement income. Instead of claiming benefits as soon as they turn 62, they?re waiting until full retirement age (or beyond) and getting bigger monthly checks.
Full payments are at least 33% bigger than early payouts. ?That?s a pretty good deal,? says Alicia Munnell, director for the Center for Retirement Research. For someone expecting $1,000 a month at full retirement age, that income would be reduced to $750 a month at 62.
Benefits then rise by about 7% percent for each year you delay collecting past the full retirement age, up until you reach age 70. A hypothetical age 66 $1,000 paycheck would grow to $1,320 a month at age 70. How much a person totally collects in benefits over a lifetime will depend on how long they live. The person who begins Social Security at 70 would need to live until at least 80 to have more money total than he would have if he started collecting at 62.
Download your online Social Security statement annually to check your earnings history. Be sure Social Security taxes paid have been recorded accurately by the Social Security Administration. It is your responsibility to check this with your employer.
So, What Are The Easiest Ways To Boost Those Benefits?
Beyond delaying the collection of Social Security?there are other ways to increase your monthly benefits.
Work for at least 35 years. Social Security benefits are calculated based on your 35 highest earning years in the workforce. If you haven?t worked for at least 35 years, zeros are averaged into the calculation, which will lower your payout. Get those 420 months of income!
Increase your income now by asking for a raise or taking a second job will raise the amount you get from Social Security in retirement. This may put more change in your pocket, but don?t forget that your Social Security tax will increase, too. Weigh the pros and cons of working a second gig; increased transportation costs, the physical exertion, the time away from your family. There are more implications to be thought about than just the extra coins in the pot at the end of the rainbow.
Spouses can elect to claim benefits based on their own work record or up to 50 percent of their spouse?s amount, if it is higher. If you were married for at least 10 years, you can also claim Social Security benefits based on an ex-spouse?s work record. After their full retirement age, dual-earner couples may be able to claim spousal benefits and then later switch to payments based on their own work record, which will then be higher due to delayed claiming.
If you have dependent children under age 19, you may be able to get more Social Security payments for them. It can be?as much as one-half of your full retirement benefit up to certain annual limits. Keep in mind annual reporting of the use of these dependent child benefits is required. And those checks stop when the child turns 19.
Social Security beneficiaries under age 66 who earn more than the limit set annually by the government ($15,720 for 2015) will have $1 withheld from their checks for every $2 they earn above that limit. Once?you reach full retirement age (which is between 66 and 67 depending upon your year of birth), the earning limit disappears, and you can earn as much as you like without losing any of your Social Security benefits.?This is another compelling reason to delay collecting your benefits until you reach at least your full retirement age.
There are a couple of technical points here as well. The income limit is strictly for earned income, and does not include pension or investment income. Also, there are interim rules on the earned income limit in the year in which you reach your full retirement age. If you turn 66 on July 1 of 2015, your earned income limit (annualized) will increase to $41,880 for the portion of the year that you were not yet 66. On July 1, the income? limit disappears entirely.
Direct deposit your benefits. You?ll get your Social Security payments faster and can avoid fees and a trip to the bank by having them directly deposited to a bank or credit union account. Electronic payments are now required for new Social Security recipients.
Like anything?gotten from the government, there is a catch. If the sum of your adjusted gross income, nontaxable interest, and half of your Social Security benefits is more than $34,000 ($44,000 for couples), up to 85 percent of your benefits may be taxable. You?ll get an annual accounting from the government of how much they paid you to help in filing your taxes. But that taxation is no different from the taxing of your retirement income from your employer. Just think of it as ?the great government giveth, and the great government taketh away.?
The “Big Secret”: The Social Security “Do-over Strategy”
There is a ?do-over strategy.? Out of the 59 million retirees who collect Social Security, a few this year may take advantage of an obscure option allowing you halt current benefits you began receiving earlier, pay back all you?ve collected (interest-free), and then re-apply for benefits at a new, higher rate based on your current age.
It’s perfectly legal, says Mark Lassiter, a spokesman for the Social Security Administration. But don’t expect the claims representatives at your local Social Security office or the employees who answer the agency’s toll-free number (800-772-1213) to be familiar with the details. Lassiter recommends you download Form 521 (?Request for Withdrawal of Application?) from the agency’s website (www.ssa.gov) and visit your local office in person.
Let’s say you qualify for full benefits of $1,600 a month at your normal retirement age of 66, but you decide to begin collecting your benefits at 62. Your retirement benefits will be reduced by 25% for the rest of your life — to $1,200 a month, in this example — because you’ll be collecting a smaller benefit for a longer period.
On the other hand, if you delay collecting benefits, you will receive an 8% credit for every year beyond your normal retirement age until you reach 70, when your maximum benefit will be 132% of what you would have received at age 66. In this example, you would receive about $2,100 a month at 70 — a $900 difference – or 75% more.
Maybe you decided to collect benefits early out of fear that you wouldn’t live long enough to collect the larger delayed benefit. But now that you’ve made it to 70, you may regret your decision and wish you were receiving a larger check.
Is There A Drawback?
In order to get that increase, you must first file Form 521 at your local Social Security office to request a withdrawal of your application for benefits. Your monthly checks will stop almost immediately — and if your husband or wife receives spousal payments based on your work record, that will stop, too. Then the Social Security Administration will send you a letter telling you how much you need to repay (along with whatever was paid your spouse). All this could take several weeks. Once you repay the benefits, you can reapply for new, higher payments based on your current age. You would have to repay about $130,000 in this example. That’s a lot of money.
Before going this route, crunch the numbers. Take into consideration your expenses during any possible delay in processing your application and the re-starting your monthly checks. When your benefits stop, so do the automatic deductions covering your Medicare premium. You’ll have to pay the Part B premium yourself — currently $96.40 a month for most retirees — until Social Security resumes. As of December 2010, the government only allows you to change your mind and pay back benefits within the first twelve months of starting your Social Security retirement.
Today, more than ever, retirement requires careful planning and analysis of your potential circumstances. Our culture has turned Social Security ? originally conceived as a ?stop gap? and secondary income for older citizens ? into the ?be all and end all? source of financial resources for most Americans. The system?s survival, threatened by our Congress? ?borrowing? of its funding for decades, means at some point things will come to a halt. Establishing alternative income streams are absolutely vital.
Have you taken these steps to increase your Social Security benefits? When was the last time you checked what your anticipated benefits would be? Do you believe Social Security should be more than a ?safety net? for citizens? How would you reform it, or what changes would you make to ensure its continuance?