Myriad ways to claim the goodies
There are many ways a married couple can decide to take their Social Security benefits, according to Alicia Munnell, director of the Center for Retirement Research at Boston College. You can't ask Social Security to list them all, so what's the right choice?
Munnell says it's hard to beat waiting until you're 70 to begin benefits because the monthly payment is 76% higher than it would be if you had started to take benefits at 62 and 32% higher than it would be if you claimed at age 66.
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Betting against death
On the other hand, some people advocate drawing Social Security benefits at the first opportunity.
Doug Carey, who founded the financial planning software firm WealthTrace, says Social Security doesn't see itself as an oddsmaker, but it does require you to bet on your longevity. For example, the break-even point for a person who earned the inflation-adjusted equivalent of $70,000 per year for 35 years is about age 80. If this person waits until 70 to claim Social Security and lives until at least age 90, he'll accumulate almost $162,000 more in benefits than he would if he had claimed at 62. But there's a possibility of losing the bet and getting nothing.
Retired law professor and Social Security expert Merton Bernstein says the longevity bet odds are bad, so claim early. "You never know when the bell will ring. I subscribe to the Woody Allen principal: 'Take the money and run.'"
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A reward for delaying divorce
If you're not happy in your marriage after 9 1/2 years, hold off before hiring a divorce attorney.
"Stay married for at least 10 years," says Raphael Gilbert, vice president, personal banker at San Francisco-based Bank of America.
Why? That's what it takes to stake a claim to your ex-spouse's Social Security benefits. If you terminate the marriage after 9 years and 11 months, you're out of luck.
If you make it for 10 years, you can collect a Social Security benefit based on up to half of your ex's earnings or on the basis of your own earnings -- whichever is higher. This is particularly important if one parent stayed home with the kids while the other worked.
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Bigger reward if ex has 'departed'
And we have another dirty little secret for you. If you haven't remarried, chances are your ex-spouse is worth more to you dead than alive -- especially if he or she was a high earner. Once an ex-spouse passes away, you'll be treated just like a widow or widower. If you are at least 60, you'll be able to collect your late-spouse's benefit and allow your own benefit to grow unclaimed until you reach age 70, when you can switch if your own benefit is higher.
Assuming your ex will dwell on Planet Earth to a ripe old age, the longer your ex-spouse delays claiming Social Security, the better it is for you. So, if you get a chance, encourage your ex to work until age 70. Then, when it's all over, you'll get to claim half of his or her maximum Social Security.
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More flexibility for widows and widowers
Social Security does a good job of explaining widow and widower benefits, but Dan Keady, senior director of financial planning for TIAA, says it doesn't clearly spell out a key difference between widow/widower benefits and spousal benefits. A widow/widower can begin benefits based on his or her own earnings record and later switch to survivors benefits, or begin with survivors benefits and later switch to benefits based on his or her own record -- even if the surviving spouse is filing before full retirement age. You can't do that with spousal benefits.
In other words, a widow can begin drawing a survivor's benefit on her late husband's Social Security when she is as young as 60, but only at a reduced rate. Then she can choose to leave her own Social Security alone, allowing it to grow in value until her full retirement age -- or even age 70. This works for widowers, too.
SSDI step 1: Hire help
When you apply for disability insurance, Social Security doesn't tell you that your first step ought to be to hire a lawyer or other expert adviser. Allsup, a private firm that advises people about how to get SSDI, says Social Security doesn't even make it clear that an applicant can have representation from the very beginning of the application process. Nearly 7 out of 10 applicants have their initial disability applications denied, which can slow this already complicated process down dramatically, according to Allsup.
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35 years is the magic number
The Social Security website offers an explanation of how your benefits are calculated, but it's a little hard to follow. You can find a simpler explanation at MyRetirementPaycheck.org, a website sponsored by the National Endowment for Financial Education.
Your Social Security payment is figured using a complex calculation based on a 35-year average of your covered wages. Each year's wages are adjusted for inflation before being averaged. If you worked longer than 35 years, the government will use the highest 35 years. If you worked fewer than 35 years, they'll average in zeros for the years you are lacking. You don't have to be a math genius to figure out the impact of that -- it drags down your average. If you can avoid zeros by working a couple of years longer, you'll increase your Social Security payment.