Social Security provides a fixed, secure income for retirees and others, helping many afford their golden years. Since you get reliable money for the rest of your life, many people want to maximize their monthly check. But how do you do that?
Basically, you have three levers to maximize your Social Security income:
n Work longer. The more years you work, the more Social Security will pay you, until your best 35 years of income.
n Earn more. If you pay more into the social security system, your payment later will be larger, up to a point.
n Delay your service. If you wait longer to claim your benefit – until age 70 – you will ask for a higher monthly payment.
But these methods are only part of the story, and those looking for a bigger benefit check have a few other ways to increase their payout.
1. Work more years
While you may not always be able to earn a higher salary, you may be able to work longer, and this is the first step in maximizing your Social Security salary.
âSocial Security benefits are calculated based on the 35 years of work during which your salary was highest,â says Mark Bodnar, CFP, wealth advisor at Octavia Wealth Advisors in Cincinnati. “This is important to consider, because if you haven’t worked for 35 years, the zeros will count, which will reduce your overall payout.”
But even if you’re 35 years old, adding a few extra years of higher income can increase your average.
“If a person already has a full record of income for 35 years, the extra income can only make a difference in future benefits if it brings down lower income from a previous year,” says Beth Lynch, CFP, consultant financial at Fort Pitt Capital Group in Pittsburgh.
Later in your career, you are probably earning more than when you started. So if you can earn more and exclude some of those early years from the calculation, you will get a higher Social Security benefit.
But working longer benefits you in several other ways: You can rack up more savings and delay the start of drawing assets into your retirement plan, like an IRA or 401 (k).
2. Earn more money
The next obvious lever to pull in to get a Social Security paycheck is to earn more money. Social Security uses a formula that takes into account the amount you have contributed to the system. The more you contribute, the greater your benefit, up to a point.
Social Security taxes your salary 6.2% each year, and your employer pays an additional 6.2%, up to $ 142,800 (for 2021) in income. Paying taxes on the maximum would give you the highest possible Social Security payment, all other things being equal. So if you pay taxes on the maximum, which tends to increase each year, then you top up your contributions to the system.
For those who paid the maximum taxable over their entire working life and claimed full benefits at age 70, the starting payment in 2021 would be $ 3,895. This number gives you the higher end of what they can expect, although that number is expected to increase over time, thanks to adjustments.
But even if you don’t earn that much before retirement, you may be able to increase your check.
âWork during your retirement to increase your benefit payments,â says Lynch. âA person who continues to work after claiming benefits may also be able to increase their benefits. Earnings during retirement continue to appear on a person’s earnings record.
Here are the biggest mistakes people make with Social Security.
3. Delay your service
Delaying your benefit payments will increase your benefit check, but there is a limit within its reach.
You can start receiving your social security benefits at 62, but you will receive less than if you waited for full retirement age (67, for people born in 1960 or later). If you want the biggest check, you can wait until 70, but waiting beyond won’t get you anything more.
âDeferred benefits will earn 8% deferred credits for each year after full retirement age,â Lynch said.
So if your full retirement benefit was $ 1,000, you could claim $ 1,080 per month while you wait for a full year. However, you don’t have to wait all year to claim part of the increase. That is to say that for each month of delay in your service, you will receive a service which is 2/3 by 1% more, which is only the annual rate of 8% divided by 12 months. So, if your full retirement age is 67 and you wait three full years, up to age 70, you can claim 124% of your full benefit.
Also, by delaying your benefit payments, you will get another âincreaseâ: the cost of living adjustment (COLA) which tends to increase the monthly payment over time.
âThis will allow a person to start with a higher benefit and receive larger ‘increases’ each year because the annual COLA is applied to the higher amount,â says Lynch.
This is the ideal age to claim your Social Security benefits.
4. Married? Divorced? You have options
Social Security offers many benefits to people in many different scenarios, and some of the more complex choices arise whether you are married or divorced. Spouses and ex-spouses should therefore carefully consider the options and what works best for them, especially in the area of ââsurvivor benefits when one spouse dies before the other.
âIf you’re married, you have to consider your spouse,â says Eric Bond, wealth advisor at Bond Wealth Management in the Los Angeles area. âThe amount that the surviving spouse will receive upon the death of the first spouse will depend on when that deceased spouse started their social security. “
âThe biggest benefit remains in the household when a spouse dies,â says Beau Henderson, senior retirement planning specialist at RichLife Advisors in Gainesville, Georgia. âThat’s why we need to think about the impact of our grievance decision on both lives. There are a lot of scenarios and they must be modeled to give you the best result.
And just because you’re divorced doesn’t mean you can’t claim Social Security benefits on your ex-spouse’s income. But there are specific requirements that you must meet.
Having a spouse or ex-spouse complicates the planning process and means you have to model more scenarios to see what maximizes your benefits.
5. Work with a specialist financial advisor
âThere are over 500 possible ways to claim your benefit, and most Americans mindlessly claim this decision which averages 40% of their retirement income,â said Henderson. âOnly 4% of people in the United States choose the optimal claims strategy that would give them the most money over their life expectancy. “
For this reason, it might be a good idea to work with a financial advisor who specializes in applying for Social Security benefits, especially if you have an unusual situation.
“Employees of the Social Security Administration are not allowed to give advice, and the majority of financial advisers do not help with this benefit because they are not educated in the area or because they are not paid.” , explains Henderson.
Due to the complexity of the program, resulting from trying to help people in many different situations, you may need specialist advice to find the best solution for you. And it could pay off big, although it might cost you a little bit of money up front.
Here’s how to find a financial advisor who will work in your best interest and what to look for.
At the end of the line
It’s easier to get a bigger Social Security check if you’ve been aiming for this all your working life. But even if you only have a few years to go before you claim your check, there are still a number of things you can do to increase your benefits, and waiting even a few years can dramatically increase your payment and so definitely do.