When it comes to Social Security, most people focus on the size of their monthly checks, but that's only part of the story. If you want the most money possible, you need to maximize your lifetime benefit, which means taking into consideration how long you'll receive these checks. Here's one simple trick you can use to add over $70,000 to your lifetime Social Security benefit.
How the government calculates your Social Security benefit
First, it's important to understand how the government calculates your Social Security benefit. Basically, it keeps track of the income you've paid Social Security taxes on every year of your working life. When you apply for Social Security, it totals up your income for the 35 highest-earning years, adjusted for inflation. Then, it runs this through a formula based on your birth year to determine your primary insurance amount (PIA).
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But if you want to claim this amount every month, you must wait to sign up until your full retirement age (FRA). That's anywhere from 66 to 67 for today's workers.
Signing up before this shrinks your checks. You'll only get 70% of your PIA per check if you sign up right away at 62 and your FRA is 67. Those with an FRA of 66 get 75% of their PIA per check by signing up at 62.
Every month you delay increases your checks slightly until you reach your maximum benefit at 70. That's 124% of your PIA per month if your FRA is 67 or 132% if your FRA is 66.
Now that we understand that, we can talk about how to maximize your lifetime Social Security benefit.
How to add over $70,000 to your lifetime Social Security benefit
The average Social Security benefit is currently about $1,661 per month. If you claimed this benefit beginning at 62 and you lived until 85, you'd get about $458,436 in total from the program. That's a pretty large sum, but remember, starting early shrinks your checks.
If you'd delayed Social Security until you qualified for your maximum benefit at 70, assuming an FRA of 67, you'd get $2,943 per month. Though you'd be receiving checks for eight fewer years, you'd still end up with a lifetime benefit of $529,740 if you lived until 85. That's $71,304 more than you would've gotten if you'd signed up for benefits at 62.
But all of this hinges on a reasonably long life expectancy. If you only lived until 75, you'd get more money out of Social Security by signing up earlier. So don't make the mistake of assuming that delaying benefits is always the smarter move.
How to decide when you should sign up for Social Security
If you're trying to maximize your lifetime benefit, you need to think about your life expectancy. It's best to assume you'll live until at least your early or mid-80s unless you have a good reason to suspect you won't make it that long. You can use your family's health history to help inform your decision, but remember to tailor your estimate based on your personal health situation as well.
Once you have an idea of how long you'll live, you should create a my Social Security account. Here, you'll find a calculator that can tell you how much you'll get from Social Security at various starting ages based on your work history. You can use this to help you estimate your lifetime benefit.
First, take your monthly benefit for a given age -- $1,661 per month at 62 in our example above -- and multiply this by 12 to get your estimated annual benefit. In our case, that's $19,932 per year. Now, multiply this by the number of years you expect to claim benefits. In our example, we assumed a life expectancy of 85, which would mean 23 years of claiming. So $19,932 times 23 years equals a $458,436 lifetime benefit.
Do this for a few different ages until you find the one that will give you the most money overall. Aim to delay benefits until this age if possible.
You may need to repeat this process periodically, as your income -- and therefore, your Social Security benefit -- will change over time. Your goals and retirement timeline might change as well. Crunching these numbers again won't take you that long, and it helps ensure you won't miss out on an easy opportunity to boost your Social Security benefit.
