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Double Your Social Security Benefits
by Lynn Brenner
Saturday, May 1, 2010

How'd you like to double the size of your Social Security checks? You will goose your future retirement income if you are able to delay the start of your benefits from age 62 to 70. If you can't wait that long, at least try to avoid taking Social Security until 66 — that will increase the size of your checks by one third. Sure, you'll forgo some income in those early years, but you'll make up the difference quickly once those larger checks start coming in.

We know what you may be thinking: What Social Security? If so, take a deep breath. Yes, the Congressional Budget Office projects the program will have a $10 billion deficit this year and bleed another $9 billion in 2011. And still, Al Gore's "lock box" sits empty.

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But few careful observers think Social Security's checks will stop arriving (though how they're calculated may change). "I never cease to be amazed that financial planners and regular citizens are so disdainful about Social Security," says Steve Vernon, a Santa Monica, Calif., retirement consultant and MoneyWatch blogger. Congress is not about to end Social Security, Vernon notes, if for no other reason than the fact that soon-to-retire Baby Boomers comprise the largest voting bloc.

Today, most people who qualify for Social Security are eager to get their hands on a check as soon as possible. A full 70 percent of recipients sign up for Social Security between age 62 and the normal full retirement age, which is between 65 and 67, depending on the year you were born.

Some, undoubtedly, have been forced into early retirement for health or economic reasons. But anyone who can avoid taking Social Security checks early will do themselves a big financial favor by delaying, since taking benefits early slashes what the government provides. As a married couple, however, you can employ more sophisticated strategies to collect Social Security early and still maximize your benefits over time. Here's how.

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The Case for Waiting

To see the long-term benefits of waiting, consider this example from T. Rowe Price senior financial planner Christine Fahlund. A man born on January 2, 1948, who earns $80,200, he can expect a $2,157 a month from Social Security at his normal full retirement age of 66. But if he retires this year, at 62, he'll receive just $1,458 a month, about a third less. Using Social Security's assumptions, by waiting until 70, his checks will start at $3,303 — more than double what he'd get at 62.

True, he must pass up eight years' worth of checks — in this example, that's a total of $149,517 in inflation-adjusted benefits from age 62 through 69. But if he starts taking benefits at age 70, the bigger checks will let him make up that $149,517 in a little over six years, or by the time he's 77. From then on, he'll be ahead of the game.Through age 85, he'll have collected $786,450, or$219,462 more than if he had started benefits at 62. Postponing meant eight years of tax-free, government guaranteed growth.

Postponing your benefits can also help you avoid the Social Security earnings penalty if you work in retirement. In 2010, if you receive Social Security checks before the full retirement age, you must temporarily forfeit $1 of your benefits for each $2 you earn over $14,160 (you can't collect any benefits if you earn more than $42,960). If you reach your full retirement age in 2010, Social Security holds back one dollar for every $3 earned over $37,680. After you've reached full retirement age, the earnings penalty disappears.

Weighing the Numbers

To determine when you should tell Social Security to start sending the checks, run some what-if scenarios.

Start by finding out how much Social Security is likely to pay you. The agency's web site has a table listing the normal retirement age based on the year you were born and the penalty for collecting benefits early. If you start at age 62, you'll get 25 percent to 30 percent less than at your full retirement age.

For a pretty good idea what your actual benefits will look like based on what you've earned (your checks are based on the average of your 35 highest-paying years), use Social Security's retirement estimator calculator.

Also, consider these three factors before you start the clock on Social Security:

Your health. If you have a serious illness or family history of short life expectancies, taking benefits as soon as you can makes sense. "But for most people, delaying benefits until their normal retirement age or later is best," says Vernon, "because, on average, Americans in their 50s and 60s will live until their mid-80s." You can use the calculators at livingto100.com and bluezones.com to estimate your life expectancy based on your health, family history and lifestyle.

Your marital status. If you're married, delaying your checks will not only boost your benefit, it will mean a larger survivor benefit for your spouse — extra money that will last for the rest of his or her life. There's an 81 percent chance that one or both members of a 65-year-old couple will live to 85, a 58 percent chance that one or both will make it to 90.

Your plans. Of course advice here can't take into account your personal needs: You may want to start taking Social Security late because you plan to keep working into your late 60s and don't need the government checks. Conversely, you may want to receive the money early so you can write the Great American Novel.

The Math for Marriage

If you're married, running the numbers is, as Meryl Streep might say, complicated. MoneyWatch blogger Larry Swedroe wrote a helpful four-part series on Social Security strategies for couples that demystifies the math. Here are the four basic rules:

1.You can claim a Social Security benefit based on your work record or your spouse's work record. The maximum spousal benefit is 50 percent of what your husband or wife will receive.

2. A widow or widower who starts collecting survivor benefits at the normal retirement age or older generally earns 100 percent of the deceased spouse's benefit. But the amount shrinks to 71 to 99 percent if you begin getting survivor benefits between 60 and your normal retirement age.

3. You can never collect your benefit and your spousal (or survivor's) benefit at the same time. If you're entitled to both benefits and are under the full retirement age, you will always receive the larger of the two.

4. You can't apply for a spousal benefit until your husband or wife has filed for Social Security.

How Couples Can Collect Early

Married couples who can't afford postponing Social Security altogether can use a technique known as the "62/70 Strategy" to maximize benefits over the long term. With this system, the lower-earning spouse files for Social Security at age 62 and the higher earner delays until age 70. "No matter which spouse dies first, the smaller benefit will die off too," says James Mahaney, vice president of Prudential Retirement and co-author of a report on how to maximize Social Security benefits.

Here's how T. Rowe Price's Fahlund says 62/70 could work: Assume John's full benefit will be $2,157 a month. His wife Jane's full retirement benefit will be $1,081 a month; at 62, she'd receive $721 a month. Jane applies for her $721 benefit at 62, and John delays claiming his checks until 70, when he'll collect $3,303. If John dies at 82, his monthly benefit will have grown to $4,601 because he had waited until 70 to start collecting. That $4,601 then becomes Jane's survivor benefit, and it will be 88 percent more than Jane would have received if John had begun collecting at age 62.

Couples should also take advantage of the little-known rules to boost retirement income.

Let's go back to John and Jane. Although John is waiting until 70 to start receiving his benefits, at 66 he can apply for a spousal benefit based on Jane's work record while his own benefit keeps growing. (If he was younger than 66, he couldn't do that.) Because he has reached his full retirement age, John qualifies for the maximum spousal benefit: $541 a month, or 50 percent of Jane's $1,081 benefit. When John hits 70, he'll drop the spousal benefit and start collecting his own larger benefit.

Lynn Brenner answers personal finance questions online.