Strategies to Help Maximize Your Social Security Benefits

With people living longer and the number of pension plans decreasing, strategically managing your Social Security has never been more critical.

by Michelle Crouch - May 01, 2017

No matter how much wealth you’ve accumulated, Social Security will likely be an important part of your retirement income.

But because you have options on when you begin receiving your benefits, it’s critical to think strategically about when and how to tap into your Social Security income, says Robert A. Arthur, First Vice President and Planning & Life Events Manager at Wells Fargo Advisors.

Now, or later?

You can start collecting benefits as early as age 62, and many retirees these days elect to do so. But the longer you wait, the more you get paid per month.

Arthur, who has 29 years of experience advising clients on Social Security, says if you’re healthy and can afford it, hold off as long as possible.

If you claim Social Security benefits at age 62, your payout will be 25% less than if you waited until your full retirement age.

“If you’re in reasonably good health and you do not need — and I stress the word need — the Social Security check to maintain your standard of living, I encourage you in the strongest possible terms to wait,” he says.

“Americans are living dramatically longer, so odds are you’re going to be drawing these benefits for 25, 30, perhaps even 35 years. That’s why growing or increasing these benefits is so important.”

If you claim at age 62, your payout will be 25% less than if you waited until your full retirement age, which is 66 to 67, depending on the year you were born. And if you can delay until age 70, you will increase your benefit by an additional 8% per year.

4 important considerations

There are situations when it makes sense to collect sooner. Arthur recommends meeting with your Financial Advisor, who can help explain the basics of the program’s rules and complexities. Then weigh the following four factors as you consider when to start collecting Social Security:

  1. Your health and life expectancy. Are you physically active and in good shape? Do you have any health habits or issues that could reduce your life expectancy? How long did your parents live? If your health is failing, it’s wise to tap into your benefits sooner. The break-even point for single people is typically about 12 years, Arthur says, meaning that if you expect to live at least 12 more years, you should delay your Social Security, because you will garner significantly more income by waiting. For married people who can take advantage of spousal benefits, the break-even point is about 10 years.
  2. Your financial health. If you aren’t working, do you have enough assets and sources of income to cover your expenses in retirement if you delay taking Social Security? If an urgent situation comes up that strains your personal finances — a family caregiving situation, for example — that may be a factor that prompts you to claim early.
  3. Market conditions. It’s hard to beat the 6–8% per year plus inflation that Social Security offers if you delay, Arthur says. But if conditions change and you think you can invest your benefits and consistently earn 8% a year, you may want to tap into your Social Security sooner.
  4. Social Security laws. Congress made several changes to Social Security rules in 2015, so Arthur doesn’t expect any big changes in coming years, despite the new administration. “Even if they did make a change, I think most people close to retirement age may be grandfathered in,” he says. But it’s important to follow the news and analyze how any potential changes would affect your situation.

Because conditions and your personal situation are likely to change over time, Arthur says it’s important to reevaluate your decision annually with your Financial Advisor.

“Don’t pick a Social Security strategy and put it up on a shelf to gather dust,” he says. “Pull it down every year and consider whether it’s time to make a change. That’s the best way to find that sweet spot between age 62 and 70 when it’s truly ideal to take the benefit.”

Michelle Crouch writes about consumer finance, parenting, and more from her home in Charlotte, North Carolina. Her work has appeared in Reader's Digest, Parents magazine, and The New York Times.

Image by iStock

Additional Resources

Planning ahead for retirement is always a smart move, but what happens if you have to leave the workforce before you planned to? Use these strategies to prepare for the unexpected.

Wells Fargo Advisors does not offer tax or legal advice.