In 2021, the average U.S. retiree will receive Social Security benefits of about $1,543 a month. That's $18,516 a year, which won't stretch very far if it's all you have to cover your expenses.
Whatever their size, those monthly benefit checks can be a nice supplement to your retirement investment income, though. And, by being strategic, you can boost your benefits and make your golden years much more comfortable. Here are five strategies for maximizing your Social Security payments.
1. Delay filing for Social Security for as long as you can
The most surefire way to get the most out of Social Security each month is to avoid it for as long as possible. That isn't exactly easy, especially if you have to retire earlier than you planned. But the value of delaying as long as possible is clear.
- For every year you claim Social Security before you reach what the government designates as your full retirement age (FRA) -- for everyone born in 1960 or later, it's 67 -- you reduce the size of your monthly benefit by about 6.66%.
- For each year you wait beyond your FRA, you increase your monthly payment by 8%. That option caps out when you hit 70.
The formula that's used to calculate those payment boosts and reductions has a fairly straightforward intent: No matter what age you are when you claim Social Security, you should get around the same total lifetime amount out of the program -- assuming you live to an average age.
Therefore, if you reach your 60s with significant health problems, holding out as long as possible may not be the best strategy for you. If you have a shorter than average lifespan, you would end up benefiting less from the program than you would by starting to collect early. But if your health and family history suggest you can expect to live into your mid-80s or longer, you have excellent reason to delay. Waiting until you're 70 vs. claiming as early as possible at 62 can boost the size of your monthly checks by about 76%.
The payoff for waiting can be even bigger if it means you can work longer. The government program calculates your benefits based on your 35 highest-earning years (adjusted for inflation). If you don't have 35 years of reported income, you'll have zeroes dragging down the average. And if you're doing better financially at the end of your career than you were at the beginning (as many people are), those higher-earning years can boost your average further.
2. Invest in a Roth IRA
If you're still earning income, investing in a Roth IRA can help you keep more money in your pocket. If you're single, a portion of your Social Security benefits will be taxable if you have provisional income above $25,000. If you're married, a portion can be taxed if your joint provisional income is over $34,000. However, income that you invest through a Roth IRA isn't taxable as long as you're at least 59 1/2 and you've had a Roth account for five years, so using a Roth IRA rather than a Traditional IRA could lower the tax bill on your benefits.
3. Sync your benefits with your spouse's
When one spouse qualifies for a significantly higher monthly payment than the other, financial planners often recommend they sync their benefits. The higher earner delays as long as possible, while the lower earner claims earlier. The reason: Social Security allows a surviving spouse to collect either their own benefit or 100% of the deceased spouse's benefit -- whichever is higher.
If the higher earner can hold out until age 70, they'll secure the maximum benefit. The lower earner could claim their own benefits as early as possible, then switch to 100% of the larger one if they outlive their spouse.
4. Claim on behalf of your ex
As long as your marriage lasted 10 years, you've been divorced for at least two, and you haven't remarried, you can claim Social Security based on your ex's work history. You can take either 50% of their benefits at FRA or 100% of what you're eligible for based on your own record. While you can start taking benefits even if they're delaying, you both have to be at least 62. And their benefits won't be affected if you claim on their behalf.
5. Stop your benefits if you claimed too early
If you start collecting your benefits and quickly conclude you'd rather have waited, you may still have time to reverse your Social Security decision so you can get bigger checks later. There are two ways to do this. If you filed for Social Security less than a year ago, you can withdraw your application, though you'll have to repay whatever you received from the program already. If you're at least full retirement age, you can also suspend your benefits to get more later on. Your payments will automatically resume if you haven't already restarted them by the time you're 70.