Most of us don't think much about Social Security early in our working lives, apart from noting the weekly toll on our paychecks. But as retirement nears, it's important to know when—and how best—to finally claim benefits from that program we've been paying into all those years.
According to wealth advisor Tim Maurer, director of personal finance at Buckingham and The BAM Alliance, the most important thing to know is that you should wait as long as you possibly can in order to claim Social Security. Although you can draw benefits as early as age 62, he says, "for every year you wait ... it's like the equivalent of making a guaranteed rate of return on your investment of about 8 percent." Putting off a claim until you're 70 or older makes sense. "Each year you wait is putting more money in your pocket for the future, when you may need it most."
You'll also want to hold off on claims if you're still working. "For every dollar that you make over about $15,720 in 2015, the Social Security Administration is going to dock your Social Security paycheck $1 for every $2" earned. But are there cases where claiming early makes sense? Yes, but only if you're retired, have no other earnings and "without that Social Security income, you will not have enough money to pay your bills," says Maurer.
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So much for timing. When that's taken care of, there are still thousands of ways to claim Social Security, and getting the process right trips up a lot of retirees—particularly married ones. For example, sorting out the confusing so-called spousal benefit "is the No. 1 way that I see people leave money on the table," says Maurer, who recommends working with a financial advisor who can run an analysis to determine the optimal Social Security strategy for you.