Social Security is one of the most important sources of income for retired Americans, with a disturbingly large number of retirees relying on what they receive from Social Security for the bulk of their living expenses. With almost half of unmarried retirees getting 90% or more of their income from Social Security, it's important for you to take whatever steps you can to make your benefit as big as possible.
The best time to work on improving your Social Security situation is before you retire, as that gives you maximum flexibility to consider all of your retirement options. But even if you've already retired, there are still a few things you can do to ensure Social Security pays you as much as you deserve. Let's look at four simple ways you can boost your benefits.
1. Max out your Social Security work history
The process that Social Security uses to calculate your benefit amount can be complicated for many to understand, but the general idea behind the calculation is quite simple. Social Security looks at your work history and takes the 35 top-earning years, making adjustments to reflect the impact of wage inflation on your actual pay throughout your career. It then takes the average of those top-earning years, runs the average through a formula, and determines your benefit. The higher the average, the more you'll receive.
If you've worked less than 35 years, then one easy way to boost your Social Security benefit is to fill in those blank years and work long enough to max out the earnings that Social Security considers. Even modest earnings will have a positive impact in that situation. If you've already had a 35-year career, then the question is whether you can earn more now than you did in your lowest-earning year -- again making sure you adjust for inflation. If the answer is yes, then staying in your job can lead to higher benefit payments down the road.
2. Consider not taking early benefits if you're still working
You're allowed to start taking Social Security benefits as early as age 62. For many, the prospect of collecting Social Security to supplement the income they earn at work is enticing, but the rules governing the program start to take away your benefits if you earn more than a certain amount from work.
Specifically, if you haven't reached full retirement age of 66, then for every $2 you earn above $15,480 this year, Social Security will take away $1 of your annual benefits. Earn enough, and you can end up losing every penny of what you receive from Social Security. And while that money isn't gone for good -- Social Security gives you credit for what it took away and raises benefit amounts in later years -- it often makes more sense just to put off Social Security benefits if you work and earn a decent salary.
3. Wait beyond minimum retirement age to claim benefits -- if you think you'll live long enough
The easiest guaranteed way to raise your monthly Social Security payment is to wait beyond age 62 to collect benefits. The longer you wait, the higher your payment goes -- as much as 8% per year higher as you approach age 70.
The trade-off, of course, is that by waiting to collect benefits, you'll receive them for fewer years during your lifetime. If you take payments later, it can take years to catch up and pass what you would have gotten by claiming benefits early. It's therefore important to consider your financial needs and your life expectancy in making the best decision for you and your family.
4. Make the most of your family situation
Social Security isn't just about you. Spouses and minor children can also earn benefits based on your work history during your lifetime, and survivors are entitled to benefits after your death. Being smart about when and how you claim Social Security has an impact on them as well.
For instance, under certain circumstances, married couples can set things up so that one spouse collects spousal benefits even as the other's benefit amount continues to grow. Yet without following the right steps, couples can miss out on those payments. A number of similar strategies can boost your family's total take from Social Security, but only if they're implemented correctly.
Social Security is a complicated program, but it's also essential for millions of Americans. Doing what you can to boost your benefits will make sure you get the most from the work you've done throughout your career.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.