1. Determine your FRA (Full Retirement age)
Your FRA is the age at which you receive full Social Security benefits. For those born between 1943 and 1954, it is age 66. For those born between 1954 and 1959, it is age 66 plus a few months. For those born in 1960 or later, it is age 67. Some wage earners elect to delay their retirement. Doing so, will increase the benefit you receive by 8% per additional year worked, up to age 70. Alternatively, you might wish to retire early. You can elect to receive benefits as early as age 62 but doing so will reduce your benefit by 25%. (If you initiate benefits between age 62 and your FRA, they will be reduced by a prorated amount.)
2. Find out your break-even
No one knows when they will die, if they did, the decision of when to take Social Security benefits would be easy. Estimate how long you will live because it will help you determine your break-even point if you decide to delay benefits. By way of example, if your benefits at age 62 are $1,923, at age 66, $2,591, and at age 70, $3,447. Your break-even would be:
Receiving benefits at 66 versus 62, break-even is age 77 to 78. (after age 78 you have received more from your full benefit as opposed to receiving the reduced amounts earlier)
Receiving benefits at age 70 versus 62, break-even age would be 80 to 81. (After age 81 you have received more from your increased benefit than if you had begun receiving the reduced amounts at age 62.)
Receiving benefits at age 70 versus 66, break-even age would be 83 to 84. (After age 84 you have received more from your increased benefit than if you had begun receiving the standard amount at age 66.)
3. Don't tax my benefits...much!
Your primary goal is to receive as much in benefits as you can by accurately determining whether you will live past your break-even point. Just as importantly, you should minimize the taxability of your benefits. If you're able to plan or take Social Security benefits when your income is low, this will reduce the taxability of your benefits and net you more Social Security. A maximum of up to 85% of benefits can be taxable based on your income. Be sure to watch out for lump sum payments from previous years or accumulated payments that are all paid in one year. This could drive up the taxability of benefits. This could happen if you make a claim that was denied, and then a few years later your claim is authorized and you receive multiple years of payments in one year.
4. File and suspend
This is a great strategy for couples who have disparate earnings records or who have not accumulated the same wage history over time. It is ideal for spouses or couples who have a similar full retirement age. The strategy is: The higher wage earner files for full benefits, and then suspends payment of those benefits. The spouse who does not have as high an earning history collects based on the higher wage earner's benefits and may collect up to 50% of the wage-earner’s full benefits. The higher wage earner continues to work and increases his or her benefits during continued employment. The nonworking spouse, or the claiming spouse, in this strategy must be at least age 62.
5. Visit a Social Security office or the Social Security web site
Unlike some government federal agencies, most Social Security offices are available and very helpful in determining a strategy to help with the decision of receiving benefits. They certainly can tell you what your benefit amount will be very rapidly as well as go through the consequences of various strategies of taking Social Security benefits. The web site, http://www.ssa.gov/myaccount/, is also a very helpful web site that will allow recipients to create a password and login and run various scenarios as well as get information.
There are many strategies for taking Social Security; these are just a few that should help in this myriad of decisions that need to be made.