Personal Finance

Get a bigger check by using these Social Security claiming strategies

Key Points
  • If you're like most American workers, you plan to rely on Social Security benefits for at least some of your income in retirement.
  • Getting the most from your benefits requires that you choose the best claiming strategy for you, a choice that can confuse many retirees.
  • These four tactics are often overlooked, and could result in bigger benefits checks that can add up over your lifetime.

Many American workers plan to rely on Social Security benefits as a steady source of income in retirement.

Yet if you are not on top of things, you are at risk for not using the right claiming strategy.

And if that happens, you could leave thousands of dollars on the table over your lifetime.

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If you're approaching retirement — or even if you are already retired — you may want to double check that you are not missing out on strategies that can boost your benefits.

1) Cancelling your Social Security payments

It may sound like the opposite of what you want to do, yet putting a stop to your checks may actually pay off in the long run in some situations.

Here's how it works: If you claim retirement benefits at the earliest age possible — 62 — you take a permanently reduced benefit. That is generally 75 percent of what you are entitled to based on your earnings record.

If you wait until full retirement age — 66 or 67, depending on the year in which you were born — you will receive your full benefit.

If you delay your benefits even longer, you get an 8 percent increase for every year you wait up until age 70. In total, that represents a potential increase of 32 percent.

If you take Social Security benefits early at 62, you can still change your mind once you reach full retirement age, said Joe Elsasser, president and founder of Covisum, a provider of Social Security claiming software.

"They can suspend from 66 to 70, and they'll get back to where they would have been had they delayed until 66 in the first place," Elsasser said.

More good news: In the interim, you do not have to pay the Social Security Administration back for the benefits you previously collected.

2) Filing based on your spouse's record

The Bipartisan Budget Act of 2015 permanently limited a number of retirement strategies available to beneficiaries.

But one strategy — a restricted benefits application — has been grandfathered in for certain claimants.

The key date to watch is Jan. 1, 1954. If you were born on that date or before, you can still take advantage of this.

Here's how it works: If you are eligible for benefits on your spouse or ex-spouse's record, you can file for spousal benefits at full retirement age, while letting your own retirement benefits grow until age 70. To do this, your spouse must qualify for retirement benefits.

What you can no longer do is let one spouse file for benefits based on another spouse's suspended record.

"Because the calendar is turning, when we go into 2019, that means that people who are now 65 and older are still eligible to make this election if it would be beneficial to them," said David Freitag, financial planning consultant and Social Security expert at MassMutual. "But so many folks have forgotten about that."

3) Claiming surviving divorced spousal benefits

If it's been a long time since you divorced, your ex-spouse may not cross your mind.

But even if you divorced at 50 and you're now 75, you could still be eligible for divorced spousal benefits if your ex passes away, according to Elsasser. That is provided you did not remarry before age 60.

If that's the case, you should reach out to the Social Security Administration to see if you're eligible for a higher benefit based on what they were receiving.

Not everyone will receive a higher pay check in that situation, Elsasser said, but it's true often enough to check.

Also beware: The Social Security Administration likely will not notify you if you are eligible.

That is because the agency does not associate two people together until you tell them you were married on a benefits application, Elsasser said.

Social Security myths

4) Collecting benefits with an earnings penalty

There is a penalty if you collect retirement benefits and continue to work, depending on your age.

If you are under full retirement age, the limit for 2018 is $17,040. For every $2 you earn above that threshold, the Social Security Administration deducts $1 from your benefit payments.

In the year you reach full retirement age, that limit is $45,360 in 2018. For every $3 above that amount, $1 is deducted from your checks.

Starting from the month you reach full retirement age, you are no longer subject to earnings restrictions.

Those rules may discourage some couples — particularly where there's an older, higher earning individual and a younger, lower earning person — to both file for benefits.

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However, it pays to double check as to whether the younger spouse would benefit from claiming, Elsasser said.

"Even if they're over the $17,000 threshold for the earnings test, it's worth exploring whether the combination of their own benefit, plus the benefit that would be paid to their spouse, would overcome the earnings penalty throughout the course of the year," Elsasser said.

In this example, the Social Security Administration may tell you you're earning too much. In that case, Elsasser said, be sure to ask some key questions.

"They need to push and say, 'Would all of my checks be eliminated, or just some of them? Even when you account for the spousal benefit and my spouse can claim on my work?'" Elsasser said.