How to (Legally) Maximize Your Social Security Benefits

How to (Legally) Maximize Your Social Security Benefits

The Social Security Administration gives retirees the option of collecting social security (SS) benefits as early as age 62. But they offer a much higher monthly benefit if you choose instead to delay collecting benefits until age 70. How much more? According to Elaine Floyd of Horsesmouth, LLC, a financial advisor consulting company, if you were to spend all the benefits you collect (without investing them), the break-even would occur at age 78. In other words, if you live beyond age 78, you’d collect more during your lifetime by delaying starting your SS benefits rather than by taking them early. Even if you spend half the benefits you receive and invest the rest at an 8% average annual return, you’d still come out ahead if you survive beyond age 81.

But there’s a much more valuable way to look at SS benefits than simply as a break-even gamble against when you might die. Social Security is the only lifetime-guaranteed payment that provides true longevity protection by adjusting for actual inflation every year. Neither company pensions nor annuities do this, nor do any of the commonly considered safe investments such as CDs or money market mutual funds. Some public pensions do offer a yearly inflation adjustment, but it’s usually capped to a very small amount, typically less than the actual rate. What makes this kind of protection so valuable is the deleterious effect that inflation has on purchasing power. Although it’s hard to imagine inflation being a problem right now, it’s actually averaged almost 3% per year over the last 80 years, and had climbed as high as 16% in the 1980s. Consider this: if you kept $100,000 in a checking account (paying no interest) over a 24 year period with an average annual inflation rate of 3%, at the end of that time you’d still have $100,000, but it would be worth only $50,000 in terms of what it could buy. And that’s just with a 3% inflation rate. Imagine how much worse the impact would be if, as a result of all the deficit spending in the U.S. over the last several years, inflation were to ramp up to double digits again. With retirement lifetimes stretching well beyond 24 years, inflation has become the biggest risk to outliving one’s money.

Therefore, unless you have an urgent need for money, most financial planners would advise you to wait until reaching age 70 before collecting your social security benefits. That doesn’t sound like a very complicated decision. It does get more complicated, however, when you add the possibility of collecting spousal benefits if you are married, divorced, or widowed. The concept is simple: a spouse is entitled to collect either his/her own benefits or half the benefits of the other spouse, whichever is larger. By knowing the SSA rules and by carefully planning when to file for benefits, which of the two benefits to choose, and when to change them, you can significantly increase the amount you collect over your combined lifetimes.

Here’s how it can work: suppose Jack & Jill are married, are the same age, and have both just reached their full retirement age (FRA) of 66. That’s the age at which your monthly benefit is the same as your primary insurance amount (PIA), the monthly benefit to which you are normally entitled and which is based on the highest 35 years of your earnings. (If you file for SS benefits before your FRA, you’ll receive less than your PIA, and if you file later, you’ll receive more. The FRA used to be age 65 for everyone, but in order to keep SS solvent, the federal government has been raising the FRA for younger workers, and it is now birth date dependent).

Continuing with our example, let Jack’s PIA be $2,200 and Jill’s $800. Since they do not need the money right now, they decide to delay collecting their benefits for another four years. And since Jill’s PIA is less than half that of Jack’s, she plans to take her spousal benefit (worth $1,100/month adjusted for inflation) rather than her own benefit (worth $800/month adjusted for inflation) when she signs up at age 70. They are comfortable with their decision, knowing that they will be maximizing their SS benefits for the rest of their lives.

But will they? Suppose instead that Jill were to file for her own benefits at age 66, and then Jack were to file for his spousal benefits at the same age (which the SSA allows him to do if he’s reached his FRA and his spouse has filed). That’s $800/month for Jill and $400/month for Jack, adjusted for inflation, until they reach age 70. At that point Jack switches to his own benefits, and Jill switches to her spousal benefits. The result? The same SS income as in the first example for the remainder of their lives beginning at age 70, but with an additional $1,200/month from age 66 until age 70. Even without the inflation adjustment, that amounts to $57,600. By simply knowing the rules and applying a little creative planning, Jack & Jill could have gotten the Social Security Administration to effectively pay for a new Tesla sedan for free!

The rules for collecting SS benefits are straightforward, and a married couple’s ability to maximize their SS payments depends upon both the differences in their ages as well as in their PIAs. Divorced spouses and widows/widowers also have the opportunity to maximize their SS income through creative planning. The Social Security website ( contains a wealth of information on retirement benefits, including several calculators to help you figure out your FRA and your PIA ( Unfortunately it does not provide the level of guidance needed to help you maximize your own benefits as above. If you’d like to discover the best strategy for maximizing your own particular SS benefits, you should contact your financial planner.

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