Phoebe Venable: Manage Social Security to get your biggest benefit

By the time you wrap up your working career, you should know the amount of Social Security income you will be entitled to receive. In fact, the Social Security Administration provides everyone with an estimate.

Your benefit is based on your earnings history and can vary depending on the age when you apply for benefits, but the Social Security Administration’s estimate is usually very accurate. This is important when it comes time to construct a retirement income plan since your social security income is predetermined, and once you have qualified for social security, the amount of income you’ll receive is set.

Some people worry that their benefits may be cut or eliminated, but it is highly unlikely that current retirees will be affected by any Social Security reform proposals.

Social Security is one of the few sources of lifetime income. And there is a cost-of-living adjustment made each year based upon the previous year’s increase in the Consumer Price Index. This adjustment is to help retirees keep up with the rising cost of living.

Social Security even has survivor benefits. Although Social Security income stops at death, benefits are paid to surviving spouses and dependents.

Full retirement age is now age 66 for anyone born between 1943 and 1954. However, there is an enticing option to receive a higher monthly benefit if you delay the start date of your benefits, something that many approaching retirement consider. For every year you delay, your benefit will increase by eight percent up to age 70. By delaying benefits to age 70, you can increase your monthly social security check by 32 percent.

Delaying benefits does require some evaluation. For instance: Are you healthy and feel as though you have many good years left? Delaying benefits to age 70 could be a great decision for someone who lives a long life but perhaps not so great for a retiree that dies at 72.

One of the questions that financial advisers hear most often regarding Social Security is how to maximize spousal benefits. Coordinating spousal benefits is one of the most complex areas of Social Security planning.

Once you are at least full retirement age, you can apply for Social Security benefits and then request to have the payments suspended. That way, your spouse can receive a spousal benefit and you can defer your benefits to earn the extra eight percent until age 70.

The question everyone asks is whether or not both spouses can do this. The short answer is no. If both members of the couple are full retirement age, only one can choose to receive spousal benefits now and delay receiving their own Social Security payment until later.

Let’s walk through an example. Bob and Barbara enjoyed long careers as high-income earners. They are both 66. Barbara can file for her Social Security benefits and begin receiving $2,000 per month. Bob applies but restricts his application to his spousal benefit. This would give him a monthly income of $1,000 (50 percent of Barbara’s benefit) while his own benefit grows by 8 percent a year because he has delayed his benefit.

When Bob turns 70, he can switch to his own benefit, which is now $2,640 per month ($2,000 increased 8 percent per year for four years).

If Barbara and Bob wanted to forgo receiving Barbara’s $2,000 per month, she can defer her benefits for four years to gain the 8 percent per year increase in benefits at age 70 just like Bob. At that time, each of them would begin receiving $2,640 monthly checks. While Bob and Barbara can defer their own benefit for four years, only one spouse can receive the 50 percent spousal benefit.

All this illustrates why maximizing spousal benefits is complex. And things get more complicated if you and/or your spouse plan to take benefits before full retirement age, if you are a widow or widower or are divorced.

Go to www.socialsecurity.gov and get informed. Financial advisers also can help you analyze your options and determine what is best for you.

Phoebe Venable is president & COO of CapWealth Advisors LLC. Her column on women, families and building wealth appears each Saturday in The Tennessean.