For many Americans, Social Security benefits make up significant part of their retirement income. Therefore, it’s important to understand which steps you can take to maximize your benefits. Whether you’re considering when to start claiming, how to build up your work history, or how working after retirement can affect your taxes, the choices you make will have lasting consequences on your benefits. Here are five general tips to increase your Social Security benefits. For hands-on help with a personalized retirement plan, consider talking to a financial advisor.
1. Work 35+ Years
The Social Security Administration (SSA) calculates benefits based on a formula that takes into account an individual’s highest 35 years of indexed earnings, average indexed monthly earnings (AIME), primary insurance amount (PIA) and any delayed retirement credits.
Indexed earnings are a key factor in determining your Social Security benefits. The SSA adjusts past earnings to reflect the change in average wages since the earnings were received. Thus, if you have less than 35 years of work history, zeros are added to the equation for each missing year, which can significantly lower your benefit payments.
The calculation of the AIME will involve summing the 35 highest-earning years of your career after adjusting for inflation and dividing by the number of months in 35 years. The PIA is the basis of the benefit amount you would receive at your full retirement age and is calculated using fixed percentages at specified bend points. If you have not attained 35 years of earnings, the inclusion of zeros in the AIME calculation will diminish the PIA, affecting your monthly benefit.
Keeping all of this in mind, working more than 35 years can boost your Social Security benefits by replacing lower-earning years in the benefit calculation. This, in turn, could potentially increase your average indexed monthly earnings (AIME) and result in higher monthly benefits in retirement.
2. Delay Claiming Benefits
Delaying Social Security is another common strategy to boost your benefits. The strategy involves postponing the start of Social Security payments past the normal retirement age to amplify the monthly benefit amount.
Specifically, for each year you hold off, up until age 70, the Social Security Administration awards a delayed retirement credit. As per the latest guidelines, those born in 1943 or later might see their benefits go up by approximately 8% for each year they postpone. That can be a great income boost during your golden years if you’re able to wait to take your benefits.
3. Claim Spousal Payments
Spousal benefits are Social Security benefits that are available to the spouses of eligible workers. These can allow them to receive up to 50% of their partner’s benefit amount. Here are the requirements to take spousal payments:
- The spouse seeking benefits must be at least 62 years old, or any age if they are caring for a qualifying child.
- A “qualifying child” refers to a child who is under 16 or disabled and receiving disability benefits.
- The marriage must have lasted at least one year.
- The amount received can be up to 50% of the higher-earning spouse’s full retirement benefit, which is defined as the age you qualify for 100% of your retirement benefit — generally between 66 and 67 years old, depending on your birth year.
- If the higher-earning spouse has not begun their own benefits, the other spouse must be at least 62 to receive spousal benefits.
4. Create a Retirement Income Stream
Social Security benefits alone may not be enough to cover your retirement expenses. Therefore, your will need to supplement those benefits with an additional income stream.
In addition to maximizing contributions to employer-sponsored retirement accounts like 401(k)s or 403(b)s, and taking advantage of employer matches (when available) and tax advantages to build your retirement nest egg, there are other options to create a retirement income stream.
First, you may consider contributing to a traditional or Roth IRA and thereby take advantage of tax-deferred or tax-free growth to accumulate savings for retirement.
Second, you could diversify your investment portfolio with a mix of stocks, bonds, mutual funds and other assets to generate income through dividends, interest payments and capital appreciation.
Finally, you may also consider buying an annuity or investing in a rental property to generate consistent cash flow. But for each investment, make sure to balance the risk with the potential return.
5. Understand Retirement Earning Limits
The retirement earnings limit typically applies to individuals who continue working and claim Social Security benefits before reaching full retirement age. It sets a maximum amount of income that you can earn from employment or self-employment before your Social Security benefits get reduced.
In 2024, the Social Security Administration set the annual earnings limit for individuals under full retirement age at $22,320. And it will deduct $1 from benefit payments for every $2 earned above that limit.
However, if you reach full retirement age in 2024, the limit goes up to $59,520. And the Administration will deduct $1 in benefits for every $3 earned above that limit.
Bottom Line
You can maximize your Social Security benefits by taking a few strategic steps. These can be include working over 35 years, delaying your Social Security benefit claim, applying for spousal benefits, creating a retirement income stream and understanding your retirement earnings limits.
Tips for Retirement Planning
- Planning for Social Security should only be one part of your retirement plan. A financial advisor can help you create a personalized plan to reach different retirement goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- You may be wondering how much money you need to save to live the retirement you want. Consider using a free retirement calculator to estimate how much you need to save.
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