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During your working life, you’ve probably contributed a significant amount of money to Social Security through payroll deductions.  From time to time you receive notices from Social Security about your earnings history and projected benefits, and, if you’re in your 60’s or older, you are probably already collecting benefits.

Most people don’t give a lot of thought to Social Security.  Is there anything to think about?  — yes, there is, and it could be very meaningful.

It helps to have some understanding of how Social Security actually works, and then we can look at some strategies to maximize your benefits, or obtain benefits for your family members.


When you work and FICA taxes are deducted from your paycheck, you earn credits toward Social Security retirement benefits.  You can earn up to four credits per year, based upon the amount you earn, up to the annual earnings limit ($113,700 in 2013).  Even if you earn more than the earnings limit, you will still receive only four credits.  Once you receive forty credits (at least ten years employment), you are fully insured and eligible to receive Social Security retirement benefits.

The retirement benefits that you will receive from Social Security are based on two principal factors:  your earnings history, and the age when you begin collecting your benefits.

The determination of your benefits begins with a calculation of your average monthly earnings (indexed for inflation).   For this purpose, Social Security uses the amount that you earned during your 35 best (i.e., highest earning) years of employment, and divides that amount by 420 (35 years x 12 months).   If you didn’t have 35 years of employment, then the amount added in for some of the years will be zero.

As a simple example, if your total earnings indexed for inflation over your best 35 years were $1,260,000, then your Average Indexed Monthly Earnings (“AIME”) would be $3,000.

Based on your AIME, Social Security determines your monthly benefit, called your Primary Insurance Amount (“PIA”) under a formula which changes a bit from year to year.  If you are eligible for benefits in 2014, your PIA will be the sum of:

(a)  90 percent of the first $816 of your AIME, plus

(b)  32 percent of your AIME over $816 and through $4,917, plus

(c)   15 percent of your AIME over $4,917.

Using the same simple example from above, if your AIME were $3,000, then your PIA would be $734.40 (90% of $816) + 32% of $2.183 ($3,000 minus $817) or $698.56, for a total PIA of $1,432.96.  This is the benefit amount that Social Security would pay on a monthly basis (not including cost of living adjustments) at Full Retirement Age.

Under the Social Security laws, Full Retirement Age has increased over the years due to rising life expectancies.  You can find your Full Retirement Age on the table below:

The Year You Were Born

1937 or earlier

1938 – 1942

1943 – 1954

1955 – 1959

1960 or after

Your Full Retirement Age


65 + 2 months for each year after 1937


66 + 2 months for each year after 1954


You don’t have to wait until Full Retirement Age to begin collecting your benefits.  You can start as early as age 62.  You can also delay your benefits until as late as age 70.


Now let’s look at some strategies that you might use to increase your benefits.

When to start

As soon as Social Security benefits are available – currently at age 62 – many people want to start collecting this additional income immediately.  When to begin taking Social Security benefits can be an extremely important decision in your retirement planning.  Here’s why:

If you start collecting before Full Retirement Age, you will permanently reduce the amount of your monthly benefit.  For example, if your Full Retirement Age is 66, but you start collecting at age 62, your benefits will be permanently reduced by 25%.  If you can afford to wait (for example, because you are still working, or your spouse has a job), you may want to consider carefully before asking for your benefits.

On the other side of Full Retirement Age, if you wait to collect, you will permanently increase the amount of your monthly benefit, and by a lot.  The amount of your benefit will increase 8% each year.  So, for example, if your Full Retirement Age is 66, but you wait until age 70 to start collecting, your monthly benefit will increase 32% above your Primary Insurance Amount (PIA).

In other words, two people of the same age, with identical earnings histories, could find that their Social Security benefits differ by as much as 57%, depending on when they started to collect their benefits.

There are a number of online programs available that propose to help you figure out an optimal strategy for claiming your benefits.  For example,, or  The focus of these programs, and of many advisors, seems to be on maximizing the cumulative amount of benefits over your lifetime, or the lifetimes of you and your spouse.

While maximizing the cumulative amount of benefits is certainly a worthy goal, this approach should not automatically dictate your approach to Social Security.  Your monthly benefit may be more significant at certain times in your life than others.  For example, if you are in your early 60’s and out of a job, you may need your Social Security benefit to pay your living expenses.  In another example, you might still be vigorous and working in your regular job in your 60’s, and not really in need of additional income.  Here, you might be well-advised to delay claiming your Social Security, in order to have a greater monthly income when you retire and need it to pay your living expenses.

Spousal Benefits

Once you file for benefits, your spouse may be eligible to collect benefits as well, based on your work history.  A spouse is eligible to collect if you have been married for at least one year, and if he or she is:

  • Age 62 or over, or
  • Any age if he or she is caring for your child who is under 16 years of age, or who was disabled before the age of 22, or
  • Age 60 if a widow or widower.

If you file for benefits at Full Retirement Age, your spouse’s benefits will be 50% of your PIA.

Divorced Spouses

If you are divorced and have not remarried, you may be eligible to obtain benefits based on your ex-spouse’s earnings record.  In order to collect this benefit, you must be at least 62 years of age, have been married for at least 10 years, and have been divorced for at least 2 years (waived if you were entitled to individual benefits at the date of your divorce). You are not required to wait until your ex-spouse files for benefits, and your collection of benefits will not impact the Family Maximum discussed below.

If your former spouse is deceased, you may be entitled to survivor benefits.  In order to collect this benefit, you must be at least 60 years of age, unmarried or remarried after age 60, and have been married for at least 10 years to the deceased ex-spouse.

Children’s Benefits

Your child may also be eligible to collect benefits based on your work history.  A child is eligible if he or she is:

  • Under the age of 18, or under 19 if still in high school, or
  • Any age if disabled before age 22.

The child’s benefits will be 50% of your PIA.

Family Maximum

There is a limit on the amount of benefits that the members of your family can collect on your work record.  The limit will be between 150% to 188% of your PIA.  When the benefits payable to all eligible members of the family exceed the limit, their respective benefit amounts will be reduced proportionally.

Filing and Suspending

Here is an extremely useful, but little known, strategy.  If you are at Full Retirement Age, you can file for your benefits, but suspend them until later on, by filing and requesting a “Voluntary Suspension.”  By suspending, you continue to earn an increase in your benefit of 8% per year, and you can wait until age 70 to start collecting your benefits at the higher rate.

By filing and suspending, you can also obtain spousal benefits for your wife or husband, and you can collect children’s benefits if your child is under 18 years of age (under 19 if still in high school) or was disabled before age 22.

Another attractive feature of the file and suspend strategy is that you can change your mind, and retroactively reverse your decision.  You will then receive a lump sum representing all the payments you would have received absent the suspension, and thereafter be paid the monthly amount that you were entitled to receive based on the date that you originally filed.


As you can see, Social Security is not the simple, straightforward subject that most people believe it to be.  Looking more closely at your options can pay big dividends.

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