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5 tricks for stretching Social Security

Just because you're eligible to collect benefits doesn't mean you should -- yet. Learn why waiting can pay off, and other ways to get more of those retirement dollars.

By Investopedia

Considering the relatively scanty payout, Social Security benefits have become like a bad joke in the retirement world. Still, in the face of a horrific recession, many retirees are jumping on the bandwagon and filing for benefits as soon as they blow out their 62 birthday candles. As a matter of fact, applications for retirement and disability benefits have skyrocketed by 23% over the last four years. This year, the Social Security Administration will have to dole out more money than it collects in payroll taxes.

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Of course, the amount of money you receive from Social Security is based on a number of factors, including how much income you earned throughout your working years, the year you were born and the age at which you file for benefits.

Many seniors assume that it's inevitable they'll receive a measly payout no matter what, so they go ahead and claim their benefits while the getting's good.

But if you play your Social Security cards right, you could end up bringing home a heck of a lot more dough than if you simply go through the motions.

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Here are five clever tips and tricks for stretching your Social Security dollar as far as possible:

1. Go ahead and procrastinate

Procrastination has earned a bad rap in our society, but when it comes to filing for Social Security, dragging your feet can be a good thing.

As you probably know by now, you can claim Social Security any time between the ages of 62 and 70. The longer you wait, the fatter your monthly check will be.

If you choose to claim Social Security early, your benefits will be reduced by a fraction of a percent for each month before your full retirement age. A "fraction" may not sound like much, but it can add up quickly if you file five or six years before your retirement age. For example, if you were born in 1955, your full retirement age is 66 years and two months, according to the Social Security Administration. If you file for Social Security at the age of 62, your retirement benefit will be reduced to only 74% of the full retirement age benefit. To add insult to injury, your spouse's benefit will be reduced by 30.83%. Ouch.

In other words, good things come to those who wait. If there's any way you can wait to file for Social Security, whether that means working longer or living off of other retirement funds, you should do it.

2. Wait even longer

It's hard enough to wait until your full retirement age to file for Social Security, so it would be even more challenging to put it off until your 70th birthday. But the reward may be well worth the wait: Those who wait until 70 to file for Social Security score a bonus amount. For each year you delay claiming from your full retirement age to the age of 70, your benefit amount will rise by an extra 7% to 8%. If your full retirement age is 66, you could earn up to 32% more if you put off filing until 70.

In some scenarios, you could even double your Social Security payments if you wait until your 70th birthday. Cha-ching!

3. Keep on trucking at your job

If you're like many, you may prefer to get a root canal than to spend another year working. However, there are countless financial advantages to working longer. Not only will you bring in more income and beef up your nest egg, but you'll also hike up your Social Security benefits.

That's because your Social Security payments are calculated by your 35 highest earning years. So if you continue bringing home that higher salary well into your 50s and 60s, you'll essentially nullify some of those low earning years when you were a rookie 20-something. This is precisely why financial experts encourage seniors to continue working for as long as possible.

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40Comments

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Tim..Central New York

12/14/2010 4:51 PM

Come on GUY's...Its "NEWS" stories like this one that give Social Security and bad name, and has everyone think that

" I'll ever see that money"..

Yet it is truly the best investment most American Workers make. Over a working man or women's life time they pay in

apx ...$80,000 and the receive a "insurance benfit" for their

Family and themselves...Upon retirement .. they receive a life Time payment..

Were at 65 years old could you buy a annuity of $80,000

and have it pay out $1000 a month for the rest of your life..

So stop with the .." Scanty payout and the benefits are a bad joke..

Look at your next SS statement..and see what your are get

for your "Buck"

Tim

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invest4now

12/13/2010 10:46 AM

It seems to me that even if you wanted to wait and could afford to wait until age 66, it would make more sense to take the money at 62 and invest it yourself. Even after taxes, investing that amount at the lowest interest rate would yield a much larger nest egg by the time you're 66 then accepting the larger paycheck.

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07FFL 02SOT

12/12/2010 8:12 AM

This article contains incorrect information as the Social Security "payback option" was repealed effective 12/08/10.

See http://news.yahoo.com/s/ap/20101210/ap_on_bi_ge/us_social_security_2 for more info.

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ThatOld Hippie (little change)

12/12/2010 8:07 AM

First off - check out your family genetics. If everyone is living well into their 80s and 90s, you may want to wait. If they are dying off in their 60s and early 70s, take the money and run. The break-even point between 62 and 70 is about age 78 (ie 16 yrs at lower amount equals 8 years at higher amount)

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angelgabe

12/11/2010 11:09 AM

Your advice makes NO SENSE when everyone is talking about the government ELIMINATING Social Security every year!!! I find this money advice incredibly lacking in money sense at all. If the government was solid, financially, perhaps this would be relatively good advice. But just like the life insurance people, who say that paying off your mortgage is bad when you could be putting money into their business, or into things like another money market or stock market fund, is not good solid financial advice. If I can pay $50. more or so every week into my mortgage, it goes directly toward the principal. Once it is paid off, I will never be kicked out of a place to live! Another thing to consider: since inflation and cost of living increases each year, you are actually LOOSING money by waiting until the money you do get is actually worth LESS by waiting for years to take it. This article makes me seriously doubt the advice given here.

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greenmountainboy

12/08/2010 7:29 PM

Social Security is a fool's retirement plan. If you are near early or normal SS retirement age and this benefit will make the difference of how much food is on your table or warmth is in your home - you are in deeper doo doo than SS will ever save you from. If you can take it at 62 - to augment whatever prudent savings you may also have provided - for an even more comfortable retirement life style earlier in life - do it - you earned it. If you don't need it at 62 because you have saved and planned wisely, take it anyway and invest it in the economy so that money creates real jobs, wealth etc. You have lived within your means and the government never has. More of the people's money in the hands of the people will ensure future prosperity. The longer you leave your benefit with the government to spend will only mean they will have to borrow it from Communist China when you do apply. Or you can wait and when you reach the cross over age of 78 - go out and buy a set of chrome wheels for your Hover' round - with all that extra money!

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mcp832

12/07/2010 12:06 PM

I started drawing ss 2 months ago at age 62. The company where I've worked for yrs hit hard times and I was layed off for the first 7 months of this yr. I have been called back to work, but only 2 days a week. With the ss I can now afford to stay at this job which I love and only work 2 days a week which with my health is a blessing. It's all in the way you look at things, and for me it works. I should even be able to put some in savings each month for a rainy day.

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cmak

12/07/2010 11:54 AM

All is well and good if you can plan. My husband and I did everything right, had amassed a small fortune for our retirement years, and then he had a stroke at 54 years old. He can not work ever again. I cannot work outside our home, as he needs me to care for him. We can't get any kind of home health care or insurance for him other than medicare disability, and we would have to pay for everything, as we are rich, (our retirement fund), but we can't take that out without being taxed and penalized. So, I have to stay home. I did find a job where I can work at home, but it doesn't pay much. To avoid excessive taxes on our retirement we take out a little each month to pay our mortgage. Our retirement fund will be gone by the end of 2011, and we will be living on social security only, by no choice of our own. We went from him making 84,000.00 a year, and will go to 24000.00 a year in 2012. Quite a wild ride, but you know what they say about the best laid plans? And, we did have an AFLAC policy, but it pays 500.00 a month, offset by SS benefits, and will end when he is 65. So, some of us plan, do things right, and still end up with SS that we have paid much into all of our lives, and it stinks!

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chief2253

12/07/2010 10:47 AM

I can actually say I beat the system by retiring early several times. retired military at age 38, drawing ret pay plus medical paid for with a 20% ded out of pocket. Retired state job age 55, bought additional state time with military time, drawing same amount of money I was making working plus they pay for eye and dental ins plus part of it was 60% of s/s. Now 62, I have built up S/S another $300 by still working till I stopped 6 months ago. Like they said, it most cases, people retire and less than a year later are gone. So, My advice is take what you can when you can.

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tizzyfit

12/07/2010 7:38 AM

Do the math! By taking early retirement at age 62 V.S. age 66 in my case, I receive 30% less than had I waited. However, by receiving the lower monthly amount for four additional years it simply means I need to live to age 78 before hitting the cross-over point. Factor in the time value of money and inflation, which has been relatively flat for the past 2 years, you can extend the cross-over age to 79, in my case.

Based on the current mortality tables, using my current age, I'm happy with my decision. If, for some reason, I decide I'll live to age 90 or so, I can always repay social security for the payments received and begin taking my retirement payments at my then current age. Essentially, I could use those same dollars and buy an immediate life only annuity, which would generate basically the same increase in monthly income instead of repaying social security back for the re-start provision.

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Ms. Georgia Peach

12/07/2010 7:02 AM

Yep, you just keep waiting to draw. That is what they are counting on. You pay in all your life, put off drawing, croak...and never see a penny of YOUR money. Keep drinking their koolaid.

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gordo1

12/07/2010 6:38 AM

I started drawing mine a month after turning 62...

After being laid off at 60..looked for a job..found a contractors job...but not steady income, may go months without working...

But those electric bills just keep coming. month after month...ha

I was at a point of using my SS or lose my house...!

Happy with the choice I made...

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EWB-BUD

12/06/2010 5:33 PM

Let's do a rough comparison between retiring at 62 vs. 66. First, assume that you've already had 35 years of creditable service when you reach 62 (more on that later), and that you wouldn't be getting promoted from clerk to CEO in those next 4 years(actually,any wage increase beyond the SS cap - slightly above $100K these days - doesn't raise your number at all). In inflation adjusted dollars, it would take the person who retires at 66 approximately 12 years to equal the total SS payments they would have received had they started drawing them at 62. So, from roughly the age of 78 on you would be better off by waiting those 4 years. The main advantage of working until you're 66 isn't the increase in your SS payments; it's the income you'll earn over those 4 years! If you are ready to retire at 62, then do it; if you need to earn more money, then don't retire until you're ready. But don't keep working until you're 66 thinking that you're fattening up what you will receive from SS. Of course this would change if you had fewer than 35 years at 62, or received pay increases during those 4 years, but in most cases for folks in the middle class, the extra years & somewhat higher wages don't generally amount to much of a plus-up in your benefits. Bottom line - don't pay much attention to what's in this simplistic article when trying to decide whether to start receiving benefits at 62, 66, or 70. Do some simple calculations (SS will happily provide you with all your earnings data & its formula), or go in and talk to a counselor at SS to see what the story is for your particular situation.

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Amelia1027

12/06/2010 5:20 PM

I began collecting Social Security at 63-1/2. I wish I had waited. Now at 80, I get half of what I would have received if I had waited until 65. One time I added up all I had contributed into Social Security over 35 years, and the total I paid in was less than what I have received in 5 years. I still think Social Security is a blessing.

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MDGTI

12/06/2010 5:12 PM

Douglas Kirk - that's brilliant. The only fly in the ointment I can see is if it's not a Roth IRA, there may be income tax on the substantial amount of the withdrawal used to fund the SS payback. But the basic theory seems sound. Use the early SS pmts for as many living expenses as possible - preserving as much as possible the capital in the retirement account to allow it to continue to grow. And if the numbers don't make sense to repay at that time? You've still gotten the benefits of a more leisurely lifestyle for eight years. The tax rate at that time would be the key, IMHO, but seemingly not a bad idea.

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TNT KNOWS

12/06/2010 4:29 PM

RIGHT!, ALL 62 year olders and up keep on working and wait till the day you die! Let's keep ALL SENIORS working instead of RAISING the SS so they can ENJOY retirement, but KEEP paying ALL the 20- 40 year old LAYOFF-EES MORE than the average SS recipient ! GLAD they're enjoying playing XBOX,PS3,SURFING facebook while Grandpa works his 40th year ! How many 62+ are ready to buy a NEW CAR or NEW HOUSE- NONE. PAY MORE SS,RETIRE the SENIORS, HIRE the youth and let them be FOOLISH SPENDERS and STIMULATE the economy. Worked for the last 100 years,now we're ****-BACKWARDS!

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RKin Oregon

12/06/2010 2:54 PM

This article assumes that everyone will live until they qualify for the maximum retirement age. My father waited until he was 64 to apply for benifits (he was born in 1900). The day he got his first Social Security check in the mail he passed away. The check had to go back to Social Security and my mother was able to qualify for half of his Social Security benifits as she never worked. I was basically forced out of my job at a local phone company after 37 years. If I hadn't taken their retirement offer I would have been let go eventhough age descrimination is illegal. Management within the company was looking for reasons to get rid of me. I took my Social Security at 62 because of my family history lessons.

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dontholdyourbreath

12/06/2010 2:37 PM

This article is utterly ridiculous. How are people supposed to wait when companies keep laying off - especially older workers? Most people I know barely made it to the minimum retirement age before they were forced out of their jobs and those who weren't left early because the conditions were so awful that they couldn't bare to continue working there. Let's be realistic. This article is pie in the sky. A bird in the hand is worth 2 in the bush - take it early because you don't know what will happen to you - you could get sick and die.

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Rapt fan

12/06/2010 1:48 PM

A really bad article, full of terrible advice.

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In Search of - dunnunder

12/06/2010 11:56 AM

take the money and run before the leftwing liberals dish it out to their masses of cry babies who do nothing but whine and cry and say they have nothing for doing nothing(acorn, seiu)!!

i saved my money and i get to have these now any day any time along with this muh hahahaha muh hahahaha

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