Finding Gold in Your Social Security Nugget

Drawing income later usually boosts payouts

For many Americans, Social Security still constitutes an important part of their retirement income plans, for security in retirement. Yet few people know how to optimize these benefits to obtain the highest payout.

There are many variables that come into play when computing benefits. I recently hosted a seminar on this topic with an expert from AXA Equitable Life.

Following are some of the tips we shared, at the meeting.

Keep in mind that individual situations can vary greatly. For cases involving coordination of benefits with disability payments, for instance, it is wise to consult with a local Social Security office.

Maximum Benefit

Social Security is a government benefit intended to provide income that you cannot outlive. Currently, it is inflation- adjusted, and does provide survivorship benefits. The maximum benefit for 2013 was $2,533 monthly. If we assume a 3% adjustment for inflation every year, the potential payout over a 30 year period of this sum could be as much as $1.5 million.

How It’s Computed

The Social Security Administration bases is payout formulas based on the highest 35 earning years, and indexes earnings to inflation. This formula results in an Average Indexed Monthly Earnings figure, which is used to compute the actual benefit to be paid. You can check on your expected benefit at the website, using the online calculator.

Living on Social Security

The Social Security program was never meant to totally replace one’s working wages. Rather it was created as a supplemental source of retirement income, at a time when many American workers still received pensions from employers. Currently, 401K plans rather than pensions are more often offered to employees, meaning that employees themselves must decide how much to save for retirement. There is a higher risk, therefore, that people will underestimate the amount necessary to save, to finance retirement over as many as 30 years or longer.

Maximizing Benefits

People who can wait until 65 or as late as 70 can increase their rate of payout greatly over people who begin benefits earlier. For instance, someone starting benefits at age 70 can receive almost 130% more as a monthly payout.

If you or someone you know has already started benefits, you can still restart the payout at a later age, to increase the monthly amount. You would request form SSA 521 from the Social Security Administration to do so. Stopping benefits may mean repayment of benefits already received.

People who work while taking benefits lose $1 for every $2 earned, if they are not yet 65 years of age. They also increase the taxation of the benefit, which is not fully tax protected over a base amount to begin with.

Special Situations

A spouse can receive half of a primary work’s benefits. Spouses can get the higher of their own benefit or the spousal benefit. Former spouses may be entitled to spousal benefits but they must have been married for at least 10 years, and not have remarried.

In the event of death, surviving spouses must be at least 60 years old to claim, if in good health, or at least 50 years old to claim, if disabled. You must also be married for at least 9 months prior to the spouse’s death. There may be exceptions for accidents.

Marital Strategies

Women statistically live 5 to6 years longer than men, according to the US Bureau of Census, 2000. Some couples decide to maximize the wife’s survivor’s benefit, if Social Security income is needed earlier than 62 or 65, by starting a payout only for the woman, not her husband. This assumes that the woman earned less in average wages than did her husband.

The husband, in the intervening years, could decide to take 50% of his wife’s benefit, until such time as he claims his own. The second Social Security pension based on the husband’s income could be started by the husband at age 66 or 70. Should he predecease the wife, she would receive a higher survivorship benefit than she would have if his benefit had started first instead. Breakeven on these strategies is usually achieved by ages 79-80.

Waiting on the husband’s higher benefit could further augment the amount received monthly. There is a reality here, as the majority of women aged 75-84 are widows.


Most Americans are aware that the Social Security Trust Fund is in danger of going bust. If the current rate of payout continues, along with current rates of collections, the trust fund would be exhausted in 2036. To avoid a complete cut in benefits , Congress may slash benefits by as much as 25% prior to this date. Solutions have been discussed but none are in the immediate offing.

Shared Wisdom

Complementary income is needed to supplement Social Security. For some people this may mean dividends and interest from a mix of stocks, bonds, mutual funds, and annuities. For other less fortunate people it may be continued employment, even if part time.

Social Security is just one source of income in a comprehensive retirement income plan. Other investments are needed.  Keep in mind that withdrawals from tax deferred accounts are fully taxable. A tax strategy can help maximize income using tax free Roth IRA or muni bond accounts.  Annuities can provide partial tax protection along with income guarantees.

I am happy to help. Let me know if you would like a copy of our slides, from the Social Security presentation.

*Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

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