Social Security: 3 Ways to Make the Most

Your Social Security can be worth more in golden years’ income than your 401(k) or individual retirement account. The trick: Know at what age to best file for benefits.

Consider a married couple who both begin Social Security with a first-year combined benefit of just $23,304, based on the Social Security program fact sheet. As of Dec. 31, 2013, the average retired benefits recipient gets $1,294 a month and a spouse $648 a month. A retirement plan needs a value today of $543,147 to provide the same income as Social Security for the next 20 years.

This assumes that each retiree in our couple lives an additional 20 years, during which each receives a cost of living increase of 2.5 percent per year and pays no federal income tax on Social Security income but does pay 10 percent federal income tax on all other ordinary income. Also assume that each spouse’s 401(k) or IRA earns 4 percent, with distributions taxed at 10 percent.

Many preparing for retirement do not understand the value of benefits and how those benefits work, nor do the eventual retirees’ financial advisors. Here are four ideas to help maximize your Social Security retirement income.

1. Use the proper start-date for benefits. Assume that you have sufficient income without starting your benefits at age 62 – your earliest date of eligibility, when you get reduced benefits – and that your life expectancy is average or better. Then, delaying your start date can be a good investment.

If you were born between 1943 and 1954, you can increase your monthly payments as much as 76 percent based on when you start your benefits, at 62 or 70, and does not include any cost-of-living-adjustment.