Tom Wise is almost 62 years old and could start claiming his social security as early as this year, but he’s not going to do that.

 “I’ll get more money, social security-wise, if I wait,” Wise said.

He’s exactly right.  Delaying when you receive benefits is one of the key ways to increase how much you get.

“It could be up to 8 percent per year that you’re increasing your benefit, all the way up until age 70,” said Trevor Chuna, Vice President of Wealth Planning at Sequoia Financial Group.

Taking Benefits Early Lowers Payment

The opposite is also true.  If you take Social Security before your full retirement age, which varies depending on when you were born, it makes your monthly payment incrementally smaller.

You can start claiming benefits as early as age 62 but your checks will forever be 25 to 30 percent less than if you waited until full retirement age.

Tom Wise doesn’t reach his full retirement age until he’s 66, so he’s waiting.

“I’m still working. I don’t need to take the money, so I’ll take it later, and let it get bigger,” he said.

Working More Years = More Money

Calculating how much you’ll get in social security every month is based on the number of years you work and how much money you make.  The payout is calculated using the sum of your 35 highest earning years divided by 420 -- the number of months in 35 years.  

If you work fewer than 35 years, you have to plug in zeros, which can really lower how much you get.  So, the longer you work, up to 35 years, the bigger your check will be.

Click here to go to the Social Security Administration’s Retirement Estimator, where you can get a personalized estimate of how much your monthly payment will be based on when you retire.

“It becomes looking at those numbers and saying ‘Okay, how can I maximize that for the longest period of time,’” Wise said, as he looked through the numbers on his chart.

Also, be aware that, if you’re single, you have to work at least 10 years to even qualify for Social Security.

Spousal Benefits

Being married gives you certain benefits, including being able to collect Social Security, even if you have not worked for 10 years.

“The spousal benefit is traditionally about 50% of the earning spouse's benefit, so if they earned a $1000, you would get $500,” Chuna explained.

A spouse who makes less or didn’t work is also entitled to a partner’s full benefit, if the higher earning spouse dies.

“Your benefit may only be 50 percent while you’re both living, but if they were to pass away, you would then increase to their full benefit amount, and your amount would go away,” he said.

Ideal Time to Collect

Figuring out the ideal time to take your benefit is a little bit of a gamble. If you don’t live long enough, taking your benefit later will end up cutting short how much you get.  On the other hand, if you think you will live longer, it’s often better to take it later.

“The longer you expect to live, the healthier you are, the more likely you are going to want to wait until age 70, because then you only have to live to 83-84 and you’ve come out ahead,” Chuna said.

Longevity runs in Tom Wise’s family and his wife’s family, too. So they’re looking at a longer-term strategy.

“My dad’s 89. Her parents are both 89, so we’re figuring there are genes in there somewhere saying we’re going to live awhile,” Wise said.

For most people, Chuna says the ideal time to take your benefit is full retirement age.

“Everyone’s circumstance is a little bit different,” he said, “but generally speaking, the sweet spot is to at least wait until full retirement age.”

Tax Implications

If you continue working after you start drawing benefits, your benefit amount is not reduced, but you could end up paying taxes on those benefits, depending on how much you make.

“Generally, Social Security benefits are tax free,” Chuna said. “But if you make more than $34,000 a year, then you will begin to be taxed on your benefit. It’s no longer tax free.”

If you reach the trigger amount, all of a sudden, 50 percent of your benefit becomes taxable, and that continues to climb all the way up to 85 percent the more money you make.  That final 15 percent remains tax-free.

Future of Social Security

A lot of folks wonder whether Social Security will even be around in 15 or 20 years.  Most likely, the answer is yes, at least partially.  The Social Security Administration calculates that it will be fully funded through 2034. Starting in 2035, the estimate is that only about 75 percent of benefits will be funded.

“Politically, it’s difficult to get rid of,” Chuna said.  “So, we’re confident the system will be there, but you’re going to have to make concessions in some way.”  (Click on video above to hear Chuna explain more about the future of Social Security).

Some of the concessions future generations will likely face include:

  • Delaying full retirement age even further
  • Reducing the amount you get for delaying retirement
  • Increasing the taxable amount of your benefit

Plan Ahead

To help maximize how much Social Security you’ll get over your lifetime, plan ahead. At least a few years before you retire, sit down and analyze the numbers, using that Retirement Estimator.  Then, develop a strategy that works best for you.

If at all possible, try not to depend on Social Security as your sole source of income.

“Retirement is all about making sure you have enough money to do the things you want to do -- play a little golf, fish, travel,” Tom Wise said, thinking about the not too distant future.