5 Ways to Maximize Your Social Security Payments
By James Royal
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:
- Work longer. The more years you work, the more money Social Security will pay, up to your best 35 years of earnings.
- Earn more. If you contribute more to the social security system, your later payment will be larger, up to a point.
- Delay your performance. If you wait longer to claim your benefit (up to age 70), you will claim a higher monthly payment.
But those methods are only part of the story, and those looking for a bigger benefit check have a few other ways to increase their payment.
1. Work more years
Although you may not always be able to earn a higher salary, you may be able to work longer, and this is the first step to maximizing your Social Security salary.
“Social Security benefits are calculated based on the 35 years of work in which your salary was highest,” 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, zeros will be factored in, reducing your overall payout.”
But even if you’re 35 years old, adding a few more years of higher earnings can boost your average.
“If a person already has a full 35-year earnings record, the extra gain can only make a difference to future benefits if it causes a previous year’s earnings drop,” says Beth Lynch, CFP, counselor finance at Fort Pitt Capital Group in Pittsburgh.
Later in your career you will probably earn more than when you started. So if you can earn more and exclude some of those early years from the calculation, you’ll get a higher Social Security benefit.
But working longer benefits you in several other ways: You’ll be able to accumulate more savings and delay the start of withdrawing assets from your retirement plan, like an IRA or 401(k).
2. Earn more money
The next obvious lever to pull to get a Social Security paycheck is to earn more money. Social Security uses a formula that takes into account the amount you have paid into the system. The more you have contributed, the greater your benefit, up to a point.
Social Security taxes your wages 6.2% each year, and your employer pays an additional 6.2%, up to $142,800 (for 2021) of income. Paying taxes on the maximum would give you the highest possible Social Security payment, all other things being equal. So if you’re paying taxes on the maximum, which tends to increase every year, you’re inflating your contributions to the system.
For those who paid the taxable maximum throughout their working lives and claimed their full benefits at age 70, the down payment in 2021 would be $3,895. This number gives you the high of what they might expect, although this number should increase over time, thanks to adjustments.
But even if you don’t earn as much before retirement, you may be able to increase your check.
“Work in retirement to increase your benefits,” says Lynch. “A person who continues to work after applying for benefits may also be able to increase their benefits. Earnings during retirement continue to appear on a person’s earnings record.
3. Delay your performance
Delaying your benefit will increase your benefit check, but there is a limit to how big it is.
You can start collecting your Social Security benefits at age 62, but you’ll receive less than if you waited until full retirement age (67, for those born in 1960 or later). If you want the biggest check, you can wait until 70, but waiting beyond that won’t get you anything more.
“Delaying benefits will earn an individual eight percent deferred credits for each year after full retirement age,” Lynch says.
So if your full retirement age benefit was $1,000, you could claim $1,080 a month while waiting for a full year. However, you don’t have to wait all year to claim part of the increase. In other words, for each month you delay your benefit, you will receive a higher benefit of ⅔ of one percent, which is simply the annual rate of 8 percent divided by 12 months.
So if your full retirement age is 67 and you wait three full years, until age 70, you will be able to claim 124% of your full benefit.
Plus, by delaying your benefit, you’ll get another “increase” – the Cost of Living Adjustment (COLA) which tends to increase the monthly payment over time.
“This will allow a person to start with a higher benefit and receive larger ‘increases’ each year, as the annual COLA is applied to the higher amount,” Lynch says.
4. Married? Divorce? You have options
Social Security offers many benefits to people in many different scenarios, and some of the most complex choices occur if you are married or divorced. Spouses and ex-spouses should therefore carefully consider the options and what is best for them, particularly in the area of survivor benefits when one spouse predeceases the other.
“If you’re married, you have to consider your spouse,” says Eric Bond, wealth management advisor at Bond Wealth Management in the Los Angeles area. “The amount that the surviving spouse will receive on the death of the first spouse will depend on when [deceased] spouse started his social security.
“The biggest benefit stays in the household when a spouse dies,” says Beau Henderson, senior retirement planning specialist at RichLife Advisors in Gainesville, Georgia. “That’s why we need to think about the impact of our claim decision on both lives. There are many scenarios and they need to be modeled to give you the best outcome.
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 need to model more scenarios to see what maximizes your benefits.
5. Work with a specialist financial advisor
“There are more than 500 possible ways to claim your benefit, and most Americans do so without much thought about this decision, which on average accounts for 40% of their retirement income,” Henderson says. “Only four percent of people in the United States choose the optimal claim strategy that would earn them the most money over their life expectancy.”
For this reason, it might be a good idea to work with a financial adviser who specializes in Social Security claims, especially if you have an unusual situation.
“Social Security Administration employees 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 field or because they are not unpaid,” Henderson said.
Due to the complexity of the program, a result of trying to help people in many different situations, you may need specialist advice to find the best fit for you. And it could be very profitable, even if it could cost you some money upfront.
It’s easier to get a bigger Social Security check if you’ve been aiming for that all your working life. But even if you’re on the edge with only a few years before you want to claim your check, you still have a number of things to do to increase your benefits, and waiting even a few years can significantly increase your payment and do so permanently.
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