Maximizing Social Security

To begin with, an individual who first claims Social Security at his full retirement age might have a choice of benefits: one based on his own earnings record, or a spousal benefit. If he selects the spousal benefit, he can switch at some future date to his own benefit, which will have grown larger thanks to his delay in collecting it. Steps like these can help maximize a claimant’s lifetime payout.

While aarp.org/socialsecuritybenefits and www.troweprice.com/socialsecurityare free, fee-charging SocialSecuritySolutions.com andMaximizeMySocialSecurity.com allow for greater customization.SocialSecuritySolutions.com was the most user-friendly. Consequently, after assessing their free report, I bought their $20 level of service and, with my wife and me in our mid-50s, found it both enlightening and sufficient. Readers closer to retirement might consider upgrading to the $50 or $125 level in order to add diagnostics and consultation with an expert.

SocialSecuritySolutions.com identifies the strategies that perform best over the greatest number of projected life expectancies. Their site also allows you to enter your salary data or an estimate of your Social Security benefits and override the program’s defaults for such items as tax rates and inflation. With the $20 service, users can rerun the numbers using different mortality assumptions. With the more expensive versions, you can also compare different claiming strategies.

As you may know, most retirees can choose early benefits at 62, full benefits at approximately 66 (depending on your year of birth), with benefits increasing each year until age 70.

To the question “Is deferring Social Security wise?,” business columnist Scott Burns responds, “Your Social Security benefits increase by 8 percent a year for each year of deferral after your full retirement age. … this is a good deal for single men, [and] it is an incredible deal for most married couples due to the joint life expectancy of couples and the fact that the survivor will also receive the higher benefits.”

In a different article, Scott Burns explains that “Delaying Social Security benefits also works as a form of life insurance— providing a lifetime benefit to a spouse at death.” Furthermore, “even if future benefits are reduced, deferral is a good deal compared with private alternatives.”

P.S. Please see my Wise As A Serpent installment “Securing Social Security Benefits” at www.levitt.com/essays/wise-2010-02