By Allen Giese, CLU®, ChFC®, ChSNC®

We spend a lot of time planning and focusing on our retirement benefits, like 401(k) plans, deferred compensation plans, FRS or FERS retirement plans, and IRAs. But I notice that many people look at their Social Security retirement benefits like an afterthought, without a lot of planning involved. And that’s a mistake. Social Security retirement benefits could represent over $1 million in benefits over your retirement life, so taking some time before you retire to look at your options and decide how you might best optimize those benefits is clearly in your best interest. Let’s look at some of the strategies people consider to get the most out of their Social Security retirement benefits.

Work 35 Years

Social Security calculates your benefit amount based on the average of your 35 highest-earning years. If you work for something less than 35 years, those zeroes are averaged in, bringing your benefit level down a bit.

For a lot of folks, 35 years isn’t a problem. However, we work with a lot of first responders where the career can take a big toll on the body. Stretching that career out to 35 years isn’t always an option. When it is an option to get one more year or two in, it can make a small difference in benefit amounts. Is it worth it? It might be … or it might not. But it’s certainly something worth exploring.

Wait Until Full Retirement Age

Do you know the most common age people begin taking Social Security retirement benefits? Age 62—the earliest age possible. Why? Because they can. But that doesn’t mean they did it right. At age 62, your benefit level has been reduced by about 30 percent and will always be lower going forward than if you had waited until full retirement age.

A big part of deciding if you should take benefits earlier rather than later is built around how long you think you’ll live. The longer that is, the more influence it’ll have on deciding to wait it out a bit before you start collecting. How are your blood pressure, cholesterol, weight, and other health markers? How long did your parents and other close relatives live? If you think you may have an above-average life expectancy, then waiting to start your Social Security benefits may be best for you. And for each year beyond full retirement age (age 67 if you were born in 1960 or later) that you wait to start collecting benefits increases your benefits by 8% per year. That’s a lot!

Doing a break-even analysis could help you decide. At what age will you start coming out ahead based on starting at a younger age vs. an older age? If you start at age 62 and your benefit level is reduced by 30% versus starting at age 67, then sometime around 80 or 81, you will have collected more from Social Security by waiting.

However, another point to consider is if you start taking benefits earlier and put that money to work in a robust investment program, you could push that break-even year out—quite some time, depending on how well the investment program does. Which, of course, is not a given. But it is something to consider.

Sign Up for Family Benefits

If you’re getting Social Security retirement benefits, some family members may also qualify to receive benefits on your record. If they qualify, your spouse, ex-spouse, or child may receive a monthly payment of up to one-half of your retirement benefit amount. These Social Security payments to family members don’t decrease the amount of your retirement benefit.

If you have a spouse who didn’t work at a paid job or doesn’t have enough credits to apply for Social Security or whose benefit is less than half of yours, they may qualify for up to half of your benefits each month once they are full retirement age. They can take that spousal benefit as early as age 62, but it will be reduced, just as yours would if you started benefits early.

In addition to that, your dependent children may be eligible for up to half of your benefit. To receive benefits, they must be unmarried and either under age 18 (or 19 if they are still a full-time high school student) or age 18-plus and have a qualifying disability that began before the age of 22.

Beware of Other Earnings

One thing you do need to be aware of if you are considering starting your Social Security retirement benefits at any age less than your full retirement age is other earnings or wages from employment. This would exclude any pension or retirement account withdrawals from IRAs, 401(k)s, and the like. If you have earned income above certain limits, Social Security will decrease your benefit by $1 for every $2 you earn. In 2024, that limit is just $22,320 per year. Again, this is just if you are taking benefits and are less than full retirement age. In the year you are turning full retirement age, but you’re still more than a month away from your birthday, the limit increases to $59,520 and your Social Security benefit decreases by $1 for every $3 you earn—gets a little tricky, so be careful. The bottom line is, if you have some sort of employment income and are less than full retirement age, you’ll definitely want to look into this before you start taking Social Security retirement benefits.

As you can see, the decision on when to begin taking your Social Security benefits has quite a few variables to consider. Your health and expectations around life expectancy, your spouse and children, other earnings, and even how astute an investor you are all impact the decision. If you want to talk to a qualified advisor about it all, and one who isn’t going to try and sell you an annuity or life insurance policy, give us a call here at Northstar. We’re financial planners who are full fiduciaries and investment managers, and we don’t sell any financial products, so no worries. All you get from us is sound advice you can use.