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Many Americans don't know how best to tap Social Security

Consumer Reports News: March 02, 2012 05:08 PM

Two reports released this week focus on how little Americans know about options for claiming Social Security retirement benefits, and how much they could gain financially by knowing more.

A new report by S. Kathi Brown of AARP shows that 62 percent of Americans between ages 52 and 70 who are eligible but haven't yet claimed Social Security retirement benefits understand that by waiting to claim after their full retirement age, they'll gain more in monthly benefits. But just 34 percent got close to estimating how much that patience gains: about 8 percent for every year they wait. And just 29 percent knew that to get the highest monthly retirement benefit, they should claim at age 70. In fact, waiting 'til age 70 can increase your monthly benefit by about 32 percent over what you'd get at your full retirement age.

Folks who are married or have been married can gain even more by timing their claims, since Social Security allows one spouse to claim a spousal benefit based on the other spouse's retirement benefit, even if the first spouse has never worked. If both spouses have worked, the spousal benefit can claimed and later converted to a retirement benefit for potentially more money. Divorced and widowed spouses can claim a spousal benefit based on their ex's earnings, too. But less than half of the survey respondents who had ever been married were aware of spousal benefits, the report said.

"People need to spend more time understanding the ramifications of how they file for benefits," notes Brett Horowitz, principal and vice president at Evensky & Katz, a wealth management firm in Coral Gables, Fl. "Most people make these decisions quickly and don’t realize how their benefits affect their spouses."

Horowitz released a short paper earlier this week that outlines ways in which two couples in different situations could reap more than $40,000 extra over four years by claiming retirement and spousal benefits at the right time.

The Social Security Administration and AARP both offer benefits calculators to help people make those decisions. We reviewed the AARP's calculator last year. is a private entity that offers custom analyses to help people decide when to claim their Social Security benefits; we haven't yet tried either the free or $9.99 version of their analyses. But the information on the site is comprehensive and useful.

Tobie Stanger


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