For most Americans, Social Security benefits will play a major role in their retirement income. With some Baby Boomers working past age 66, it may make sense to delay taking Social Security as the payment increases 8% per year until age 70.
Since Social Security is inflation adjusted, the cost of living increase throughout life will be on a larger amount, and because a surviving spouse can receive either his/her own Social Security or that of a deceased spouse, this benefit could continue for 20 to 30 years.
This is especially beneficial when there is a disparity in Social Security benefits. Suppose one spouse (Bob) is due the maximum benefit, while the other spouse (Mary) has a much lower benefit. What can they do in retirement?
When Bob reaches full retirement age (currently age 66), he can go through the process of “filing and suspending” his benefit. This allows Mary to file under Bob’s Social Security benefit once she reaches at least age 62. But, if possible, it’s better to wait until full retirement age otherwise there is a reduction in the benefit.
Because Bob suspended his Social Security benefits, it continues to increase 8% per year. But let’s suppose Mary’s Social Security benefit is better than 50% of Bob’s. Obviously she would be better off filing on her own.
But here’s the interesting twist; if Bob has reached full retirement age, he could file for a spousal benefit and receive 50% of Mary’s Social Security benefit, even while continuing to work and watching his own Social Security increase by 8%.
At age 70, Bob would give up the spousal Social Security benefit and then file on his own.
There are lots of subtle ways to maximize Social Security benefits.