4 Ways to Maximize Your Social Security Benefits

WHILE THE IDEA of receiving any sizable Social Security benefits come retirement will likely be a pipe dream for current 20-somethings, it's still a stark reality for those looking to retire in the next decade or so.

Of course, that's great news for baby boomers, but it far from guarantees them a worry-free retirement. After all, many soon-to-be retirees will live well into their 80s or even 90s, and their nest eggs need to last along with them. Once that personal savings is gone, they'll have to depend almost entirely on Social Security for income.

In fact, one out of five elderly married couples (and more than 40% of elderly single retirees) already do, according to the Social Security Administration (SSA). And given that Social Security benefits comprise about 40% of what the average retiree was making when they were working, that means every penny counts.

"People are living so much longer and retirement is lasting 20, 30 years. [Meanwhile,] health plans are disappearing as well as regular pensions," says Kathryn Hanson, who oversees retirement planning initiatives at financial-services firm SecurePath by Transamerica. "This makes Social Security even more important to plan."

Here are four ways to get the most out of your Social Security benefits:

Don't Dip In Too Early

It's tempting to start taking your Social Security benefits as soon as you can at age 62. Exhibit a little patience, however, and it will really pay off.

Waiting until you hit full retirement age (depending on the year you were born, that can range anywhere from age 65 to 67) can increase your benefits by up to 30%, according to the SSA. And for each year that you delay taking the benefits between your full retirement age and age 70, you can receive an additional 8% in benefits, says Mark Lassiter, spokesman for the Social Security Administration. (This applies to those born in 1943 or later.) While you may end up receiving the same amount in benefits in your lifetime as someone who started collecting earlier, your monthly benefits will be larger.

For example, a 62-year-old who made an average of $60,000 a year and who decides to retire in 2008 will get roughly $13,200 in annual Social Security benefits, according to Clarence Rose, professor of finance in the College of Business and Economics at Radford University. If they wait until age 66, they'll receive roughly $18,700 per year. Should they hold off until age 70, that amount will grow to $26,100 per year.

Of course, this strategy isn't right for everyone. Those who are strapped for cash or who don't expect to live much past their 70s, may be better off taking reduced benefits at an earlier age, says Lisa Featherngill, a Winston-Salem, N.C.-based certified public accountant and director of financial and estate planning at Calibre, a unit of Wachovia (WB).

Make a Little Extra on the Side

Just because you've retired doesn't mean you can't earn a little cash on the side. Retirees (who have reached their full retirement age) can still collect full Social Security benefits even if they take on a part-time (or for the more ambitious, full-time) job, says Ben Jacoby, a certified financial planner at Morristown, N.J.-based Brinton Eaton Wealth Managers, a fee-only financial planning firm.

Holding down a job gives retirees more flexibility as well as earning power. They can either take their earnings and invest them, or use their earnings for living expenses and hold off on collecting Social Security so they'll get higher benefits further down the road, says Christine Fahlund, a senior financial planner at T. Rowe Price (TROW).

Spread the Wealth Around

Spouses and children up to the age of 19 who are full-time high school students can also take advantage of your Social Security benefits. In fact, each can receive up to half your total benefits (on top of whatever you receive). There are limits, however: the maximum amount a family can receive is typically capped at 150% to 180% of the recipient's benefits, according to the Social Security Administration. So, say your spouse and two children collect full benefits; collectively, they can receive 150% of your benefits.

Most current spouses are eligible to receive their husband or wife's Social Security benefits. Typically, a couple may maximize their benefits when the spouse with the smaller amount of benefits takes only from their spouse's more plentiful benefits and leaves their own Social Security untouched. That way, their Social Security benefits continue to grow, explains Jacoby.

Tap Into an Ex-Spouse's Benefits

Just because you haven't seen or spoken to your ex-spouse since the divorce doesn't mean you're completely cut off from them. In fact, just like a child and a current spouse, you can also receive a percentage of your ex-spouse's Social Security benefits.

The criteria for eligibility is a little more strict, however. You have to have been married to your ex for at least 10 years and you can't currently be married to someone else. Still fit the bill? You could be eligible for up to 50% of your ex's benefits. Even better, your ex will never know — they will continue to receive their full benefits — and it won't impact their current spouse's benefits either, says Fahlund. "There's no exchange of information, and you don't have to go back to the life you've left behind, but you can maybe get more money from it," she says.

Also see:
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How Long Will My Money Last?
5 Tax-Saving Strategies for Retirees