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Six Ways to Maximize your Social Security

Neil Downing

What’s the best time to start collecting Social Security retirement benefits? What strategies are available? Can you continue working while collecting benefits? Such questions can bedevil busy working people who are planning ahead for retirement. So here are six helpful ways to make the most of your Social Security benefits.

1. Wait until full retirement age. One of the best ways to maximize Social Security retirement benefits is to postpone the point at which benefits begin. About 73 percent of all retired workers start collecting Social Security benefits before full retirement age (generally age 66), according to Social Security Administration figures. However, collecting “early” — before full retirement age — results in an automatic reduction in the amount of benefits.

For example, if someone who is due a $2,000 monthly Social Security benefit at age 66 elected to begin collecting at age 62, the benefit would be reduced by 25 percent to $1,500 a month. In general, the reduction works out to approximately one-half of 1 percent for each month before full retirement age. Waiting until full retirement age to start collecting results in no reduction in benefits, said CAPTRUST Senior Director Scott Matheson. “The math is on your side,” if you wait until full retirement age to begin collecting Social Security, he continued.

The person who starts collecting at age 62 has the advantage, from the standpoint of total dollars collected, but only for only the first 12 years. After that, the person who waited to full retirement age to start collecting has the advantage, said Social Security expert Kurt Czarnowski. 

Early Retirement “penalty”

Collecting Social Security benefits before full retirement age results in a reduction in benefits. The following example assumes that a $2,000 monthly benefit is due at full retirement age (66).

Reductions in column two, and corresponding reduced monthly benefit amounts in column three, are for someone whose full retirement age is 66. Reduction amounts vary depending on one’s full retirement age. For someone whose year of birth is between 1943 and 1954, full retirement age is 66. For someone born later, full retirement age is later. (For someone born in 1955, for example, full retirement age is 66 and 2 months.)

“If you start collecting at full retirement age, you get 100 percent of what your work and earnings have entitled you to” without reduction, said Czarnowski, a retired Social Security Administration official who now runs a Social Security consulting firm, Czarnowski Consulting, in Norfolk, Massachusetts. “Good things come to those who wait,” he said.

Keep in mind that there are other factors to consider in deciding when to start collecting Social Security benefits, including health and lifestyle issues, Matheson said. “You need to make the decision that’s best for you” based on your own facts and circumstances, he said.

2. Take advantage of delayed retirement credit. To squeeze even more money out of Social Security — and put more money in your pocket — consider postponing collecting Social Security benefits beyond full retirement age. That will result in an automatic and permanent increase in benefits, through what’s known as the delayed retirement credit. In general, “The longer you wait, the higher your payment is,” Czarnowski said.

For someone born in 1943 or later, delaying the collection of benefits beyond full retirement age results in a benefit increase of 8 percent per year. That works out to about 0.667 percent a month. There is no additional benefit under the delayed retirement credit beyond age 70. 

For example, if you were due a $2,000 monthly benefit at full retirement age (assume at age 66), but waited until age 70 to start collecting, the monthly benefit would be 32 percent higher, or $2,640 per month.

Through the delayed retirement credit, “You’re getting a guaranteed 8 percent per year by waiting,” Czarnowski said. A guaranteed 8 percent annual increase “sounds pretty doggone good,” especially in today’s low-rate environment, Matheson said. “One would be hard-pressed to find a bond portfolio that pays 2 percent,” he said.

Taking advantage of the delayed retirement credit can be especially helpful to those who have resources other than Social Security to cover expenses in retirement and can afford to wait to begin collecting, according to Matheson.

An individual may also continue to work while delaying the start of Social Security retirement benefits beyond full retirement age. The obvious advantage is an increase in income. But there is another potential benefit, involving the underlying Social Security formula. 

To determine the amount of one’s retirement benefits, the Social Security Administration looks back over the individual’s entire history of work and earnings and chooses the 35 highest-earning years. So if someone stepped out of the workforce for one or more years—to raise a family, for example—those “zero earnings” years count against an individual for purposes of the formula. By continuing to work, an individual can replace one or more “zero earnings” years, thereby increasing benefits.

3. File and suspend. The “file and suspend” strategy can benefit a married couple or someone who is single, Czarnowski said. For example, suppose that Jim is at full retirement age, 66, and is entitled to a $2,000 monthly benefit, but wants to wait to start collecting to take advantage of the delayed retirement credit.

His wife, Caroline, has a limited work history and would receive a comparatively small monthly benefit if she claimed Social Security benefits based on her own record. She can obtain a benefit based on Jim’s record, but only if he files a claim.

So Jim formally files a claim with the Social Security Administration, but tells the agency to suspend payments to him until later (age 70 in this example). As a result, Caroline can immediately begin receiving a monthly benefit that is equal to half of Jim’s benefit. The exact amount would depend on when she started collecting. And Jim, by waiting until age 70 to start collecting, receives a monthly benefit of $2,640, instead of $2,000

The file-and-suspend strategy can also work for someone who is single, serving as a kind of insurance policy, Czarnowski said. For example, suppose that Gary is single, has reached full retirement age of 66, and files a claim for benefits, but suspends payment. 

Two years later, he learns that he has terminal cancer. He can direct the Social Security Administration to pay him, in a lump sum, the two years of benefits that he did not collect. He can use the funds to help pay for healthcare expenses or for other purposes. If he did not use the file-and-suspend strategy in this example, he would be limited to six months of retroactive benefits.

Overall, Social Security is an entitlement program that provides for the masses, Matheson said. However, “it’s customizable enough” so that people can employ strategies, based on their circumstances, that allow them to optimize benefits, he added.

4. Work while collecting. A Social Security beneficiary can continue to work while collecting benefits. For some, working during retirement is preferred; for others, it may be a necessity “because they’re not ready for retirement” from a financial standpoint, said Phyllis Klein, CAPTRUST senior director.

Retirement Earnings Test

A portion of your Social Security benefits may have to be forfeited if one works and collects benefits at the same time—and the amount earned from work exceeds a certain threshold. Following is a brief list of various income types and how they are treated.

A portion of your Social Security benefits may have to be forfeited if one works and collects benefits at the same time—and the amount earned from work exceeds a certain threshold. Following is a brief list of various income types and how they are treated.


Bear in mind, though, that if you keep working, you may have to forfeit a portion of your benefits, depending on your age and how much you earn through work:

Early Retirement. Someone between 62 and full retirement age may earn only a certain amount before having to forfeit benefits. A new limit is set each year. The limit is $15,720 ($1,310 per month) for 2015, up from $15,480 for 2014 ($1,290 per month). Under this rule, $1 in benefits will be withheld for every $2 in earnings above the limit. Thus, if one were to earn $17,720 in 2015 under this rule, $1,000 in benefits would be withheld.

Full Retirement Age. For the year in which an individual reaches full retirement age, a less punitive rule applies. For every $3 in earnings above the limit, $1 in benefits is forfeited. The limit is $41,880 for 2015, or $3,490 per month. This limit applies only from January to the month before someone reaches full retirement age, Czarnowski said. Beginning with the month someone reaches full retirement age, no limit applies.

After Full Retirement. After reaching full retirement age, the sky is the limit. No earnings limit applies; a beneficiary may earn as much as possible from work and forfeit no benefits.

Working while collecting has advantages. Just remember “that there’s a trade-off involving the potential forfeiting of benefits, depending on one’s age and other factors,” Klein said.

5. Limiting tax impact. A Social Security beneficiary may have to pay federal income tax on the benefits if his income exceeds a certain threshold. And because the threshold stays the same, with no adjustment for inflation, more and more beneficiaries trigger the tax each year, said Scott Weiner, editor and author with the Tax & Accounting business of Thomson Reuters, a global provider of information for businesses and professionals.

Because the formula is linked to one’s income, the only way to avoid the tax, or at least reduce its impact, is to reduce income—not a pleasant thought. However, some techniques can limit the pain. For example:

Social Security benefits count as income for purposes of the tax, so consider postponing the point at which you start collecting benefits.

Withdrawals from traditional individual retirement accounts  (IRAs), 401(k) or 403(b) accounts, and other pre-tax retirement savings vehicles generally count as income for purposes of the  tax. “So consider limiting the amount withdrawn from these vehicles,” Weiner said. “If you must make a withdrawal to meet the plan’s rules, try to withdraw no more than that minimum amount.”

Consider converting at least a portion of a traditional IRA to a Roth IRA. For purposes of the tax on benefits, the amount converted to a Roth IRA typically counts as income for the year of conversion, but future Roth IRA withdrawals are tax-free, assuming that certain qualifications are met.

Full Retirement Age

Collecting Social Security benefits before full retirement age results in a reduction in benefits. Collecting at full retirement age, however, results in no reduction in benefits. Full retirement age depends on one’s year of birth.

6. Divorced spouse benefits. In planning ahead for retirement, remember that you may be eligible for Social Security benefits based on an ex-spouse’s work record. “That’s something people just aren’t aware of,” Klein said. “Those benefits are available, and people may qualify and not even realize it,” she said.

If you qualify, you will receive the full amount to which you are entitled (under Social Security rules) based on your own work record, or a benefit based on your ex-spouse’s work record, whichever amount benefits you most. To qualify:

You must be age 62 or older,
You cannot be currently married,
The marriage had to have lasted at least 10 years, and
Your ex-spouse must be entitled to receive Social Security benefits.

"Married” means married and filing a joint federal income tax return. “Income” is sometimes called “provisional income” and means your adjusted gross income plus tax-exempt income plus one-half of your (and your spouse’s) Social Security benefits.

What if your ex-spouse is 62 or older and can qualify for benefits, but has not applied? You can receive benefits based on the ex-spouse’s work record if you have been divorced for at least two years. Drawing a benefit based on an ex-spouse’s record will not affect the benefits that the ex-spouse receives—or the benefits received by that ex-spouse and his or her family, Czarnowski said. 

Social Security benefits, while helpful, are only one piece of an individual’s broader financial plan, so taking advantage of any strategy should be done with care after consulting your financial and tax advisors and after thoroughly considering the bigger picture.  

The Social Security Administration’s website is an excellent source for more information. 

A few specific resources to explore include:

The retirement earnings test online calculator

The retirement age online calculator

How Work Affects Your Benefits, a booklet

When To Start Receiving Retirement Benefits, a fact sheet

Your Retirement Benefit: How It Is Figured, a fact sheet

• Incentivizing Delayed Claiming of Social Security Retirement Benefits Before Reaching the Full Retirement Age, a Social Security Bulletin article

What Every Woman Should Know, a Social Security booklet (which includes information for men and women)

About the Author:

Neil Downing is a Certified Financial Planner™ and enrolled agent, licensed by the U.S. Treasury to represent taxpayers before the Internal Revenue Service. A newspaper reporter, editor, and columnist for 35 years, Downing has authored several publications focused on maximizing the value of employee benefits and retirement savings vehicles. 


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