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Timing your Social Security benefits

Last reviewed: October 2011
Illustration of a SS card balancing on a dollar bill
Illustration by Christopher Zacharow

Patience is a virtue, and it's worth money when it comes to Social Security benefits. Workers applying now at age 66, currently full retirement age, will receive a third more in monthly benefits than they would if they had signed up at 62, the minimum eligible age. If they wait until 70, they'll get nearly a third more than at 66. Yet about 46 percent of Americans applied as early as they could in 2010, according to the Social Security Administration.

Deciding on the right time to apply will depend on your financial situation as you reach eligibility age. If you're out of work when you hit 62, you might have little choice but to start collecting. If you'll have retirement income from a pension, IRA, or 401(k), you might have more leeway in planning when to apply. And if your spouse is eligible for benefits, you have even more choices.

Stretching the lump sum

Your Social Security retirement benefits can be viewed as monthly payments or a lump sum. Both are based on 35 years of income that could include your earnings after you reach "full" retirement age, which is 66 for folks born from 1943 to 1954. Spread over a shorter period of retirement, that lump sum pays more per month. If you're 66 this year, delaying filing for benefits until next year will add 8 percent to your monthly check; waiting until 70, the oldest age at which you can file, would add 32 percent. Conversely, if you're 62 this year and apply for benefits now, you'll receive 25 percent less than if you wait until age 66 because that lump sum is expected to last over a longer retirement period.

Collecting Social Security while you're still working might appear to be a smart move; you'll have it both ways. But for every $2 of income you make over $14,160 before reaching your full retirement age, Social Security withholds $1 in benefits. You get those withheld funds back when you reach full retirement age.

Let's say you file for Social Security this year at age 62 and continue to work at half your prior salary of $37,000 a year. If your monthly benefit at 66 would be $1,498, you'd receive $1,123 at age 62. Your earnings would drop those benefits to $942, a reduction of $181 per month. Social Security returns it to you at age 66, when your monthly payments revert to $1,123. But because you filed at 62, your payments would not rise to $1,498.

Coupling your payouts

Married couples can take advantage of spousal benefits; one spouse is paid up to 50 percent of the other spouse's benefits. But to claim them, you must be at full retirement age, even if you have never worked.

If your spousal benefits are higher than your own retirement benefits, you'll get an amount equal to the higher benefits. But you can continue to work and build up your own benefits while receiving a payout now on your spouse's account. Here are two strategies from Boston College's Center for Retirement Research:

Claim now, claim more later

Claim spousal benefits now and later switch to your own benefits. Let's say a husband is four years older than his wife. He claims his full benefits at age 66. When his wife reaches her full retirement age, she applies for spousal benefits but keeps working. At 70, she files for her own Social Security payment. Between ages 66 and 70, she'll get up to 50 percent of her husband's benefits as spousal benefits. When her own benefits kick in at age 70, they will be worth 32 percent more.

Claim and suspend

File for Social Security benefits and then suspend them at the same time your spouse applies for spousal benefits. That strategy might be the best course when only one spouse is working or when one spouse makes significantly more money than the other.

Consider a husband who has worked most of his life and a wife who is a homemaker. He applies for Social Security at 66 but suspends his benefits and keeps working until age 70. Shortly after, his wife files for spousal benefits. By continuing to work, the husband will boost his benefits and also increase the survivor benefits his wife would receive if he should die before she does.

Social Security offers other categories of benefits, including those for former spouses, widows and widowers, the disabled, and some minor children. You'll find helpful information at the Social Security Administration's website at www.ssa.gov. The AARP's new Social Security Benefits Calculator (under Tools at www.aarp.org/work) can also provide useful estimates of your benefits under various scenarios.