May 12, 2022 4 min read

A recent survey done by the Nationwide Retirement Institution found that 88% of older adults do not know how to maximize their Social Security.

SS is one of the most important retirement assets for most people. It provides an income that lasts a lifetime, has cost-of-living increases and provides important financial support to a spouse.

You can receive SS based on your own work record or a spouse’s work record. For this discussion, we are not covering disability payments or child benefits. The Social Security Administration tracks your 35 largest earning years. These figures are run through a formula to determine your monthly benefit. The formula allocates a bigger percentage of benefit to low-income people and adjusts earnings over your career to account for inflation.

The age at which you can receive full SS benefits is determined by the year in which you were born. Everyone born before 1954 must be 66 and everyone born after 1960 must be 67. The age increases by 2 months for each year between 1955 and 1959. This is what is known as full retirement age.

You can start to receive benefits as early as age 62. If you do so, you will be penalized about 6.5% every year you start before your full retirement age. This means, you will get more checks, but they will be smaller for life.

If your spouse has their own work record, their earnings will be calculated the same way. If your spouse did not work outside of the home, when they reach their full retirement age, they could be eligible for half of your benefit. If they had their own income record, and it was less than half of yours, they would get the difference added to their benefit. If their record produced a benefit larger than half of yours, there would be no extra added on.

When one spouse dies, one SS benefit will go away. The good news is it will be the smaller check, but the bad news is living expenses will not be cut in half.

Social Security is gender neutral so all rules apply equally to everyone. Before you reach your full retirement age, there is an earnings test if you are receiving benefits. For 2022, it is $19,560. For every $2 you earn over this threshold, you must repay SS $1.

Many people do realize this fact. Once you reach full retirement age, there is no longer an earnings test.

Another important fact is if you delay starting your SS benefits after full retirement age, your benefit will increase by 8% a year until age 70. This means that someone born before 1954 could receive a check 132% of their regular benefit. These delayed benefits do not increase the spousal benefit, but they do increase the survivor benefit when someone passes away. This can be very important to offset the loss of one SS check, and maybe some pension income at the death of the first spouse.

Social Security maximization is determining how to get the most total income for a couple over their lifetimes. It must consider the differences in ages and income levels between the spouses.

Using these techniques is very important to the surviving spouse. Decisions made in your 60s can have a major impact in your 80s. Remember, cost-of-living increases magnify the importance of this planning.

The SS office does not do these kinds of calculations. You must find a qualified professional to help you understand all of the nuances involved.

Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, “Your Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.” If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.