You probably know that your income during your working years affects the size of your Social Security benefit in retirement, but that's far from the only factor that matters. Most people don't realize it, but the three things below also influence your benefits.
Understanding how these factors interplay can help you make smarter decisions that lead to larger checks in retirement.
1. The number of years you've worked
When calculating your benefit, the Social Security Administration looks at your average monthly income over your 35 highest-earning years, adjusted for inflation. This is known as your average indexed monthly earnings (AIME).
If you haven't worked at least 35 years before signing up for benefits, the government looks at the total income you've paid Social Security taxes on over your working years. But you also have zero-income years factored in. For example, if you worked for 30 years, you'd have five zero-income years included in your benefit calculation.
These reduce the size of your AIME and, by extension, your monthly benefit. For example, if you earn $50,000 per year, adjusted for inflation, for 35 years, your AIME would be $4,167. But if you only worked for 34 years, your AIME would drop to $4,048. That's a $119 difference.
Whenever possible, you should try to avoid zero-income years in your benefit calculation. You don't have to stop working once you hit 35 years, though. Most people earn more money later in their careers than they did when they were first starting out. After they pass the 35-year mark, these later, higher-earning years will gradually begin to replace their earlier, lower-earning years in their Social Security benefit calculation, resulting in a larger AIME.
2. Your birth year
The Social Security Administration assigns everyone a full retirement age (FRA) based on their birth year. This determines when you become eligible for the full benefit you're entitled to based on your AIME. Today's workers' FRAs fall somewhere between 66 and 67.
You can sign up for Social Security before this, and many choose to apply for benefits as soon as they become eligible at 62. However, doing so shrinks your checks. Every month you claim benefits under your FRA reduces your checks by anywhere from 5/12 of 1% to 5/9 of 1%. That might not seem like much, but it adds up over time. Those with an FRA of 67 who claim at 62 only get 70% of their full benefit per check, while those with an FRA of 66 get 75% of their full benefit per check if they sign up at 62.
To get the largest possible benefit, you must delay benefits until 70. Every month you delay benefits past your FRA increases your checks by 2/3 of 1% until you reach this age. For those with an FRA of 67, waiting until 70 earns them 124% of their full benefit per check, while those with an FRA of 66 get 132% of their full benefit per check at 70.
At first glance, it can seem like delaying benefits is the smarter way to go because you'll get larger checks. But you'll also get fewer of them. If your goal is to get the most money from Social Security possible, you have to consider your life expectancy. Those with shorter life expectancies typically get more money overall by claiming early. But those who live into their 80s or beyond often get more by delaying benefits.
3. Your marital status
Social Security is pretty straightforward for single adults because you can only claim your own benefit. But things are a bit more complex for married, divorced, and widowed people.
Married couples can claim their own Social Security benefit if they qualify, or they can get a spousal benefit. This is up to 50% of their spouse's benefit at their FRA. The Social Security Administration automatically gives you whichever is higher, but you can't claim a spousal benefit until your spouse signs up.
Divorcees may qualify for an ex-spousal benefit. This is similar to a spousal benefit, except you don't have to wait for your ex-spouse to sign up as long as you've been divorced for at least two years. However, you can only claim an ex-spousal benefit if you and your ex were married for at least 10 years and you haven't remarried.
Widows and widowers may qualify for Social Security benefits on the deceased's work record at 60 or even earlier if they're caring for the deceased worker's minor or disabled child. Ex-spouses may also claim these survivors benefits.
If you're unsure which benefits you qualify for, reach out to the Social Security Administration for more information. Someone there can help you figure out what documents you need for the application process.
The way the government calculates your Social Security benefit can seem complicated at first glance, but once you start picking it apart, you realize that there's a lot you can do to control the size of your checks. And even the factors you can't change are still worth understanding because they can inform your decision about when to sign up. If you haven't thought about how the above factors can affect your checks, you may want to reevaluate your Social Security strategy to see if there's anything else you can do to maximize your benefit.