When you're planning on Social Security providing a substantial portion of your retirement income, it's important to do all you can to increase the amount of your monthly benefit.
While your Social Security checks are never going to be enough to support you without additional funds, you can take these four steps to get the most money possible if you're hoping they'll bankroll much of your retirement.
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1. Maximize your earnings
Your monthly Social Security benefits equal a percentage of your average indexed monthly earnings, or AIME. A higher AIME translates to a bigger check.
Your AIME is calculated by adjusting your wages for inflation and determining your average earnings during the 35 years when your income was highest. That means you can maximize it by increasing your income as much as possible throughout your career (up to the Social Security wage base limit) and by working for at least 35 years. If you work for less time, your AIME would be reduced by the inclusion of years of $0 wages in your average.
If your earnings have gone up throughout your career (after adjusting for inflation), working longer than 35 years could also help maximize your benefit. That's because you'll replace a lower-earning early year with a higher-earning one in your AIME calculation.
2. Don't start your checks until 70
Every retiree has a standard benefit, or primary insurance amount, based on their AIME. But you may not get that exact amount. Early filing penalties will reduce it if you claim your checks before your full retirement age (FRA). And delayed retirement credits could increase it whenever you delay the start of your benefits past FRA.
Delayed retirement credits can only be earned until you reach the age of 70. They cause your monthly check amount to increase substantially. For each month of delay, they raise the size of your check by two-thirds of 1%. This adds up to an 8% annual benefit increase for each year you wait.
If you're hoping to use Social Security checks to bankroll a good portion of your retirement, you can't afford to pass up the hefty benefits increase that comes from delaying.
3. Understand all the benefits you could get
In some cases, the best way to get the maximum income from Social Security is to claim benefits based on someone else's work record. Specifically, you may want to claim either spousal or survivor benefits.
These aren't just available to those who are currently married or who were married when their spouse passed. Spousal benefits are also available to those who were married for at least 10 years prior to divorcing, as long as they haven't remarried. And survivor benefits are available to divorcees as well, as long as their marriage lasted 10 or more years and they didn't remarry before age 60 (or before age 50 if they're disabled).
The Social Security Administration won't necessarily help you figure out how to maximize your benefits by being strategic about claiming spousal or survivor benefits. Make sure you do the research to understand all you're entitled to.
4. Minimize taxes on your Social Security
Finally, if you're hoping Social Security will provide you with a hefty retirement income, you can't afford to have more taxes taken out of your checks than necessary.
The good news is Social Security benefits don't become taxable until your provisional income hits a certain threshold. The bad news is the threshold is pretty low. Once your provisional income (your taxable income plus half of your Social Security benefits plus some non-taxable income) hits $25,000 as a single filer or $32,000 as a married joint filer, you'll be partially taxed on your Social Security funds.
If your other retirement money comes from a Roth IRA, however, your distributions aren't taxable income so they won't put you above this income threshold. To make your Social Security stretch as far as possible, you'll want to invest in a Roth throughout your career instead of a traditional account.
If you're nearing retirement age or are already retired, though, don't assume a Roth conversion is the right move to protect your Social Security from taxation. Roth conversions can have major financial implications for current and near-retirees that you'll need to make sure you understand.
Ideally, if you're hoping to get the most money possible from Social Security, you'll act early on in your career since several of the strategies on this list -- such as maximizing income and investing in a Roth -- are best started when you're young and have many years until retirement. Remember, though, that no matter what steps you take, you are unlikely to be able to live on Social Security alone, so having supplementary income is essential for a secure retirement.
