One of the major objectives for most retirees is to maximize their Social Security benefits over their lifetime. The strategies for doing this differ for singles, compared to married partners.
Note: for Social Security purposes, single individuals include those who never married, divorcees who were married for less than ten years and widows / widowers who were married for less than nine months! Those divorcees and widows are not vested in benefits from their former partners.
Wait to collect
The longer you live, the more Social Security benefits you collect. As mentioned in Part 1 of this series on Social Security, there is a tradeoff. If you wait to start collecting, your monthly benefit increases. But you have lost months or years of payments. The break-even point is at about age 79, when your benefits so far are the same whether you have started collecting early or late. If you live longer than age 79, you will collect more by waiting to start collecting.
So how long will you live? Currently the life expectancy for a 65-year-old man is about 19 years (until age 84) and for a woman is about 22 years (until age 87.) This means at the life expectancy age, half of the formerly 65-year-olds will still be around to collect and half will not.
So unless you have very compelling evidence that you will not be around to be paid past age 79, i.e. your health is much worse than your contemporaries, you should wait as long as possible to file for your benefits. Social Security payments reach their maximum amount, at age 70, so there is no reason to wait beyond that age.
Furthermore, if you happen to live past your life expectancy age, you may need a higher Social Security payment than ever. What if you have used up much of your investments? Then your investment income would be lower. You might use up your investment altogether and become totally dependent on your Social Security for income. Your financial professional and / or accountant should be able to work with you to plan this out if you need advice specifically for your own situation.
Verify that the numbers are right
What else can you do to maximize Social Security? You should review your work history either on the form Social Security has mailed you or at the Social Security website you have set up for yourself at www.ssa.gov Remember that the amount of your Social Security payments come from your best 35 years of earnings, even if some of the years are zeroes. Social Security gets its numbers from the IRS. Occasionally, there are mistakes, and you can correct them.
Manage income in the gap between work and Social Security
If you retire before age 70 and want to wait to collect Social Security, where will your money come from to pay the bills? The two most common sources are investments, both income and principal, and some paid work, perhaps from a part-time job. Or perhaps you can extend your current job before retiring.
Does it make sense to cash in some of your investments so that your Social Security benefit can grow? Generally, yes. Each year after your Full Retirement Age (see Part 1) your benefit grows by 8% each year. That growth rate, which is guaranteed and tax-free, is much less risky than expecting your investments to exceed that grow rate each year.
Next blog: Social Security strategies for married couples.