How to make the most of Social Security

Many baby boomers ponder when to begin taking Social Security benefits. It’s a big decision: Social Security retirement benefits are the main source of income for an overwhelming majority of retirees. According to The Urban Institute, a two-earner, average-wage couple may collect about $600,000 in lifetime Social Security benefits.

The best time to start taking benefits varies, as life expectancies and other personal circumstances are always different. But no matter your situation, it’s critical to know some important facts before making your decision. Here are some key considerations:

• Age 62: This is the earliest a person can file for Social Security retirement benefits. However, the earlier a person files, the less money they will receive each month.

• Age 66: This is considered “full retirement age” for most baby boomers, which allows a person to collect full Social Security benefits and have the option to continue working without an earnings limitation.

• Age 70: Everyone has the option to defer receiving any benefits until age 70, which entitles a person to their maximum monthly amount possible.

Not surprisingly, the difference between filing at ages 62, 66 and 70 can have a significant impact on total benefits.

Consider the following example: Joe is 62 and files for Social Security. He will receive $1,600 per month, or $19,200 annually. If he waits until age 66 to collect, he will receive $2,133 per month. That amounts to $6,400 more each year.

But if Joe waits until age 70 to file, his benefits jump to about $2,816 each month, or $33,792 annually. That’s $14,592 more a year than if he started at age 62!

• For couples, decide when the person with the lower benefit should file for Social Security.

For many couples, filing for Social Security benefits triggers a key benefit for their spouse. Once one spouse files for benefits, the other may be eligible for spousal benefits as early as age 62. In most cases, the second spouse is eligible to receive up to 50 percent of their spouse’s full benefit if they begin collecting these benefits at their full retirement age. However, if a person applies for spousal benefits before their full retirement age, their 50 percent spousal benefit will be reduced.

Using our previous example, if Joe files for Social Security benefits at age 66, he will receive $25,600 annually. His spouse — even if she had no lifetime earnings — could receive 50 percent of Joe’s benefit when she is age 66, or $12,800. Together, they would receive $38,400 each year.

• Consider filing a restricted application.

There’s a unique strategy available for people who turned 62 by January 1, 2016. Called a “restricted application,” it enables a person who is 66 to delay filing for Social Security benefits, but still collect some money once their spouse files. This strategy allows the couple’s highest earner to receive some spousal benefits while allowing their benefits to continue to grow.

Here’s an example: Bill and Sara are both age 66. Each month, Bill is eligible for $2,500 and Sara for $800. Once Sara files for Social Security, Bill can file a restricted application and will receive $400 per month in spousal benefits immediately. However, he can still wait until age 70 to apply for his own Social Security benefits and then receive his maximum amount of $3,300 per month.

• How best to maximize lifetime benefits for a person once their spouse passes away.

Social Security rules allow a surviving spouse to collect the same benefit earned by their deceased spouse. Returning to our original example, if Joe waits until age 70 to file and collects $33,792 annually, once he passes away his wife will receive this amount for the rest of her life, replacing her prior benefit.

The rules enable the surviving spouse to take advantage of this increased benefit even if they filed for their own benefits as early as age 62, or if they’ve received the spousal benefit mentioned above.