Date: August 9, 2016

No one wants to leave money on the table, but if you don’t map out your approach to collecting Social Security benefits as part of a plan to save for your retirement years, you could be doing just that. Exactly how to maximize your benefits depends on your personal situation, but here are some general rules to keep in mind.

Pay Attention to Your Earnings

Many people focus on a retirement target date, but it pays to understand how your working years affect your Social Security benefits as well. The amount of your benefits is based on your highest 35 earning years. If you worked for 30 years, you’ll have only 30 years of earnings plus five zero years, which decreases your potential benefits.

Delay Retirement

The next part of the equation comes when you begin collecting benefits. Technically, you can begin collecting Social Security payments at age 62, but this permanently reduces your overall benefits by 25 percent. If you wait until full retirement age — age 67 if you were born in or after 1960, and age 66 if you were born between 1943 and 1954— you’re not penalized. The age gradually rises from 66 to 67 in monthly increments if you were born between 1955 and 1959. 

Now here’s the flip side: If you work past full retirement age of 70, you’ll collect 32 percent more in benefits. You’ll get an extra 8 percent a year, plus inflation adjustments, for each year you wait.

Get Married or Divorced

Starting in May 2016, the Social Security Administration will begin closing the so-called “file-and-suspend” loophole that allowed married couples to maximize their social security benefits. Under “file-and-suspend,” once a spouse reached the full retirement age of 66, he or she could file for Social Security and then suspend the benefits. The other spouse could then claim a spousal benefit while their Social Security grew to age 70, thus allowing them to collect more money in the long run.

The loophole allowing Social Security benefits to grow age 70 while a spouse collects benefits will be entirely phased out by 2023. At that time, a spouse will still be able to file for benefits, but their partner will only be about to claim spousal benefits of up to 50 percent of the benefit amount.

If you divorce after being married for at least 10 years, and if you don’t remarry, each spouse can claim a spousal benefit. You must wait two years after your divorce to begin collecting and you must have reached full retirement age. If you stay married, however, only one of you can claim spousal benefits.

Tax Considerations

Even if you do everything right to collect the largest possible Social Security payments, you may have to pay income tax on the benefits, diminishing them to some extent. Normally, Social Security income isn’t taxable, but this changes when half of your collected benefits, plus other sources of income like tax-exempt interest, reach $25,000 if you’re single, $32,000 if you’re married. When you reach this threshold, some of your benefits may be lost to taxation.