How to Get the Most Out of Social Security

Your Social Security retirement benefit is one of the most valuable pieces of your retirement plan. Not only will it likely account for a large portion of your income when you retire, but it also has an incredible feature: your annual benefits increase with inflation. Your 401(k) and IRAs don’t come with such a great guaranteed inflation-protection feature.

Yet I see so many of you not getting the most out of your Social Security benefit. The vast majority of people start their retirement benefit before they reach their full retirement age (FRA) which right now is age 66. (The FRA for today’s younger workers will range between 66 and 67.)

When you start receiving benefits before your FRA the size of payout is reduced. The monthly benefit for someone with an FRA of 66 who chooses to start payments at age 62 is 25% less than if they waited until age 66.

Now I know what you’re thinking: “But Suze, I paid into it for so long, I want to start getting my payments as soon as possible. That’s my money.”

I want you to consider a few other issues:

• Are you in good health and is there a history of other family members living long lives? Half of today’s 65-year olds will still be alive into their mid 80s. That’s a long time to support yourself from retirement accounts. Delaying when you start Social Security is a smart way to lock in a higher payment.

• Can you work at least part time until your FRA? If you can’t work full time once you hit 62, or simply don’t want to, I encourage you to think about a part time job that would pay you at least as much as your Social Security benefit if you started at age 62. Not only can staying engaged be good for you psychologically-assuming it is work you enjoy!-you’re effectively making it possible to wait a few years to start taking Social Security, patience that will boost your payout by at least 25% when you start.

I also want you to know about an even bigger potential Social Security payoff. Someone who has a FRA of 66 who is patient enough to wait until age 70 to start receiving Social Security, will be rewarded with a benefit that is 32% higher than their age-66 benefit. I want to make sure you took that in: Every year after your FRA up until age 70 your benefit will be increased by 8%. That’s a guaranteed 8%. There is no investment out there today that offers you a risk-free 8% guaranteed return. (For married couples, it isn’t necessary for you to both wait to age 70. The highest-earner should aim to delay as long as possible, but the other spouse can start claiming earlier. By doing this you will have assured that the surviving spouse will have the largest possible payout.)

There are many nuances to the decision of when to claim Social Security. I just want any of you who are focused on starting at 62 to slow down for a moment and consider whether you can build greater financial security by waiting a bit. The AARP Social Security calculator is a good resource for understanding how waiting can pay off for you.