Making the Most of Your Social Security Benefits


By Charlie Matejowsky, CIC, LUTCF

EDITOR’S NOTE: Please be aware that all parts of Social Security are under scrutiny by the current administration and need to be monitored. This article followed the current rules as of this writing, but Social Security changes will likely occur in the future. Refer to the Social Security website ( for the most current rules and regulations.

During my working years (I’m still working), every time I looked at my paycheck and saw how much money was being withheld I cringed because I thought I would never get back all the money I contributed to Social Security. But now, since I am on the other side of my full retirement age (FRA), my attitude has changed 180 degrees. You see, I get a check every month for the rest of my life, and my wife will also get one after I am gone. Believe me, experience really is a great teacher. If I knew then what I know now, I would have made better choices concerning my Social Security options.

Social Security was established in 1935 to alleviate poverty among the elderly during the Great Depression. It was created as a self-financing program that would collect payroll taxes from workers which would immediately be paid out in benefits to retirees. Millions of Americans depend on Social Security. For many, it is their primary source of retirement income. For others, it is an important supplement to pensions and other retirement savings.

Social Security retirement benefits provide:

  1. a predetermined amount of income (based on your earnings history)
  2. steady income
  3. lifetime income
  4. inflation-adjusted income (periodic cost of living adjustments)
  5. survivor benefits


The exact amount of your benefit is not computed until you turn age 62. At that time, all your annual earnings are indexed to account for wage inflation. Once this is done, your highest 35 years are tallied. If you worked for more than 35 years, only the highest 35 years will count. If you worked less than 35 years, the missing years count as zeroes. (To make sure the government is keeping an accurate account of your work history during your working years, request a Social Security statement at least once every two years.)

Working longer could raise the average of your highest 35 years of earnings. Say, for example, you were age 62 and had 31 years of employment at $40,000 per year. If you retired and started to collect benefits, the average of your highest 35 years of earnings would be $35,428 (this assumes $0 for four years). Your monthly Social Security benefit would be $1,030 (determined from the Social Security website). But, if you worked four more years, at $40,000 per year, and retired at age 66, your average earnings over 35 years would have increased to $40,000 and your monthly Social Security benefit would rise to $1,500 per month (33% increase for waiting until the full retirement age + 13% increase based on higher average earnings = 46% more benefit).

“Full retirement age” (FRA) has been 65 for many years. However, for people born in 1938 or later, that age gradually increases until it reaches 67 for people born after 1959. This is the age at which you may begin receiving your full “Primary Insurance Amount” (PIA).

The age at which you apply for Social Security benefits has a tremendous impact on your monthly income and the total amount of benefits you will receive over your lifetime. This is one of the most crucial decisions of Social Security planning. The answer depends on your situation and your plans. If you claim early, the odds of “losing big” could be much greater than the odds of “winning big.”

Patience is a virtue; wait to start collecting your Social Security in order to take advantage of “delayed retirement credits.” You can start collecting at any age between 62 and 70. If you start to collect at age 62, your monthly benefit is the minimum.

If you wait to full retirement age (FRA), your benefit will increase by one-third. And, if you wait until age 70, your benefit will be at least three-fourths more than the minimum. For example, If you receive $1,000 per month at age 62, you would get at least $1,333 at age 66 and $1,760 at age 70. When delaying benefits after FRA, benefits increase by 8% per year until age 70, where benefits are mandatory.

If you are less than your full retirement age and receiving benefits, some of those benefits may be withheld if you work. The earnings test amount for 2014 is $15,480 per year. For every $2 you earn over this amount, $1 in benefits will be withheld. When you reach FRA you can continue working without any benefits being withheld. (A complete explanation of how working affects benefits is available on the Social Security website:


Since 1993, up to 85% of your Social Security benefits are subject to income tax. For a married couple that has joint provisional income under $32,000, zero percent of their Social Security benefit will be taxed. If their provision income is between $32,000 and $44,000, fifty (50) percent of the benefit will be taxed. If their provisional income is over $44,000, 85% of the benefit is taxed.

So what counts as sources of provisional income?

  1. One-half of your Social Security benefit
  2. Any distribution taken from your IRAs, 401(k)s, 403(b)s, pension plans
  3. Any 1099 or interest generated from stocks, bonds, mutual funds, CDs
  4. Any employment income
  5. Any rental income
  6. Interest from municipal bonds

Among the things that do not count as provisional income are distributions from:

  1. Roth IRAs
  2. Life insurance
  3. Annuities

Other Benefits

A strategy added to Social Security in 2000 that many married couples find valuable is “File and Suspend.” This concept allows the married couple to take advantage of spousal benefits and “delayed retirement credits” simultaneously. How does it work? An example follows:

John, a worker at FRA, and his spouse, Mary, at least age 62 with a lower available benefit, apply for his benefits, then immediately suspend receiving the benefit. This establishes the amount of spousal benefit (half of John’s benefit) that Mary is eligible to immediately collect. She must first file for her benefits and then she would be eligible for the difference between her benefit and the spousal benefit. Because of the “delayed retirement credits,” John’s benefit will grow by at least 8% each year until he turns age 70.

At age 70, John stops his suspension of benefits and starts to draw his significantly higher benefit. Mary is now no longer eligible for the spousal benefit (because John is receiving his benefit), so she collects only her benefit based on her own earnings. If John precedes her in death, Mary will then be eligible for half of John’s increased benefits (or her own benefits if they are larger—but not both). Note that this concept is not a simple decision that is best for everyone. It should be considered on a case-by-case basis.

Another benefit often overlooked is that you can receive spousal benefits based on your ex-spouse’s work record if the marriage lasted at least 10 years and you are currently not married. If you are at least age 62 and have been divorced at least two years, your ex-spouse does not even have to apply for the benefit in order for you to collect.

Some people are worried that Social Security won’t be around when they are ready to retire. Social Security was designed as a pay-as-you-go system. Payroll taxes from current workers go into a trust fund and are immediately paid out to current retirees. Long-term projections today tell us that without reform, by 2033, participants will receive 23% less in benefits than they receive today. Possible solutions bouncing around Washington D.C. today include:

  1. Increase the maximum earnings subject to Social Security
  2. Raise the normal retirement age
  3. Lower benefits for future retirees
  4. Reduce COLA (cost of living adjustments) for all retirees

Personally, I believe you will see Social Security reform in the near future, but not in an election year.

Sources: “The Baby Boomer’s Guide to Social Security,” by Elaine Floyd, CDP®, Director of Retirement and Life Planning, Horsesmouth, LLC, The Social Security Claiming Guide, Center for Retirement Research at Boston College.

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Life & Benefits Essentials
Attend the CIC Life & Health Institute to learn about life insurance, planning for personal insurance needs, and annuities in retirement planning. Another option is the CISR Life & Health Essentials Course, in which more basic life insurance concepts are presented. The National Alliance Research Academy’s Life & Benefits Essentials book has an entire chapter on retirement planning, and another chapter on planning for personal needs (shop
Note: This article focuses on some of the important topics related to Social Security and retirement planning. For more complete information on this subject, contact a retirement consultant who is knowledgeable on Social Security matters, and/or visit the government Social Security website at:

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