Tom: We have social security on tap for our listeners today, correct?
Mellody: We certainly do. As most people know, social security is the primary program that ensures that retirees, those with disabilities, and other individuals who are in need have a safety net. This month, the program marked its 80th year of operations, having been signed into law by Franklin Roosevelt in august of 1935, and i thought it would be a good time to talk about the program and provide some information to our listeners that can help them better understand – and increase – their benefits.
Tom: First, tell us what has changed over the past 80 years with regard to the program.
Mellody: Actually, the program has remained very much the same over the past 8 decades. The biggest changes have come not in the program, but in the population it serves. When Social Security was launched in 1940, a 21-year-old male had a fifty-fifty chance of living to the age of 65. Today, a male reaching retirement age is expected to live to 85, and on average women reaching 65 can expect to live until they are 87. As a result, the average retiree receives 12 more years of Social Security benefits than she did in 1940. And it is not just that people are living longer. Population growth, combined with a greater number of people retiring early, has caused the number of people who receive benefits to balloon. Social Security is expected to serve over 90 million people just 20 years from now! That has put pressure on the program, and these trends will have to be addressed at some point.
Tom: That is for sure, especially because the program is so important for retirees.
Mellody: Absolutely, Tom. As I have mentioned before, Social Security is the underpinning of many Americans’ financial well-being in retirement. Currently, more than 60 million American retirees received Social Security checks, with the average monthly check totaling $1,221. The average retiree depends on this money for 70% of her income, and of those receiving these benefits, one in three people depend on it to cover at more than 90% of their expenses. That is not a lot of money to live on, so you want your monthly check to be as big as possible.
Tom: How do we do that?
Mellody: Here’s the most important thing to remember: the longer you wait to start collecting Social Security, the bigger your benefit will be. Currently, you can take early retirement at 62, full retirement at 66 (or 67 if you are currently younger than 55), or additional benefits if you wait until 70.
For example, if you turned 62 this year, you earn $50,000 a year, and you decided to start collecting social security now, you would receive just over $1,000 a month. But, if you waited four years and collected starting at age 66, your monthly check would be over $1,400. Even better, if you wait until age 70, you get 32% more than your full benefit amount. Using our example, your monthly benefit would rise from around $1,400 to almost $2,000 a month. So if you can hold off, it’s clearly worth it.
Tom: What else that we can do to maximize our benefits?
Mellody: If you are married, you may also be able to maximize your Social Security check by knowing what and when to claim. First, you can choose to receive your own benefits or half of your spouse’s benefit amount. So, if you do not work or your spouse earns significantly more than you, the spousal benefit is the right way to go.
Next: if you plan to claim that spousal benefit, you’ll only get 35 percent of the amount rather than 50, if you start collecting before you turn 66.
Finally, while the rule of thumb for Social Security is that the longer you wait, the bigger your check, this is not true for spousal benefits. Waiting past 66 doesn’t provide you as the spouse with any additional benefits. For you or your better half to get a spousal benefit while the other waits, you have to file for your own retirement benefit first. Then, if you also want your benefit to grow until age 70, you can file at your full retirement age but suspend collection until 70.
Tom: Any other tips?
Mellody: Two additional pointers: first, do not file for two benefits at once. For example, if you’re eligible for a retirement benefits and a survivor benefit, you’ll lose out on one if you file for both simultaneously. Secondly, if you were married for over 10 years, and then got divorced, you may be eligible to claim full spousal benefits while letting your own benefits grow, so check in to that if this applies to you.
Tom: Always great to have you join us, Mellody!
Mellody: Great to be here, Tom!
For more information on Social Security benefits go to the Social Security website HERE.