Social Security: Delay or Hit Go?

Making the most of Social Security could significantly boost your retirement income. But how do you do it? The biggest blanket piece of advice out there is to delay taking benefits, and it does have merit. But it's not at all the whole story. You should take into account a number of considersations when it comes to Social Security, so you can learn to apply the rules in a way that makes sense for you.

The Basics of Benefits

Let's start with a short primer on Social Security benefits and how they're calculated.

Your "full" retirement age benefit starts somewhere between 65 and 67, depending on the year you were born, and the amount of money you get is based on an inflation-adjusted average of your 35 highest-earning years.

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You can start taking Social Security benefits as early as age 62, though it means your monthly benefit amount will be permanently reduced by about 30% from the full benefit amount (the actual amount you receive will depend on your current age, full retirement age and income). On the other hand, you can delay benefits and see them grow—if you wait until age 70, your monthly Social Security benefit will grow to about 135% of your full benefit. (For more on how benefits are calculated, please visit the Social Security Administration. The "Your Retirement Benefit: How it's Figured" publication can help.)

For many retirees, this begs the question: Is it better to delay and get fewer years of higher income, or start early and get more years of lower income?

The right answer depends on your individual situation, including your other income sources, your life expectancy, your spouse's benefits and your risk profile. But while there's no one-size-fits-all solution, there are ways of thinking about benefits that can help you find the right answer for you.

Capitalizing on Spousal Benefits

If you're married (or were married for more than 10 years and did not remarry), you may be eligible for spousal benefits.

The maximum amount you can receive is 50% of your partner's full retirement age benefit. In other words, if your spouse starts taking Social Security at full retirement age, you can receive half that amount. If he or she waits until age 70, their benefit would increase but yours would stay at 50% of the full retirement age benefit.

Because of this setup, it typically makes sense to use a spousal benefit if one person earned significantly more than the other.

Just remember to strategize so that your total benefits are maximized. For example, you might consider having the lower-earning spouse start taking benefits at age 62 while the higher earner waits until age 70. At that point, the lower-earning spouse can switch to a spousal benefit—depending on your personal situation, this could result in more Social Security income over time.

Plan for Low Interest Rates

Every year you delay taking benefits "earns" you 8% in additional Social Security income in the future. That basically means you could get a larger rate of return on your Social Security benefits than you would on many investments—and Social Security is guaranteed. Not only that, but Social Security benefits are indexed to inflation, meaning that once you start receiving your checks, they'll keep pace with the rising cost of living.

So, when choosing between starting Social Security and using your investments to supplement your retirement income, you might want to consider which one could give you the better rate of return. If your portfolio isn't yielding much, you may be better off using more of it to help finance your retirement while delaying Social Security benefits. Also, be aware that your decision could impact your estate plan: using your investment assets might mean less money in your estate.

Of course, what works for one person might not work for another. Your personal financial situation is unique, so it's impossible to give simplified advice about something this complicated. But comparing yields and considering the estate planning implications could offer you some food for thought as you map out your own plans.

Consider Your Health

Financial need is a major reason people start Social Security early, and in these situations, it's difficult to justify hardship in exchange for higher income later. Similarly, if you're chronically ill or in poor health and concerned about lifespan, it might not make sense to delay.

These are tough questions, and the right answer is unique to each individual. Just remember that while the math can point you in the right direction, it can't address all the qualitative issues that make up your life. Be sure you feel comfortable with your choice in the context of the big picture.

Run the Numbers

If you're looking for ways to maximize your family's benefits or if you'd like to find out what your own possible benefits could be, head over to the Social Security Administration's Benefits Planner website. From there, you can learn about the benefits you might be eligible for and use the SSA's free calculators to help optimize your own Social Security plan.

For personal help and advice, consider making an appointment with your local Social Security office. Be sure to come prepared with questions and any supplemental information that could help you make your decisions.

At the end of the day, the important thing is to educate yourself about Social Security and have a plan.

Bradford Pine is a wealth adviser and president of the Garden City, NY-based Bradford Pine Wealth Group. He assists individuals to create wealth, simplify their lives and plan for retirement.

Anna B. Wroblewska contributed to this column.