Social Security benefits are a crucial source of funds for most American seniors because you become entitled to them automatically by working, they last for your entire retirement, and they are protected against the effects of inflation.
Maximizing this income source can help you to avoid financial hardship later in life. And the good news is, it's possible for almost anyone to increase the amount of money they receive by making one simple decision.
Here's how to get 24% more money in your monthly Social Security check
If you're hoping to get the highest possible Social Security check available to you, you'll be glad to hear that most future retirees can increase their retirement income by a whopping 24% compared to their standard benefit.
To understand how to make this happen, you first need to know how your standard benefit works. This is the benefit you're entitled to based on inflation-adjusted average wages earned during the 35 years when your salary was the highest.
To receive this amount, you must file for your first Social Security check to be paid out once you hit a designated age called your full retirement age (FRA). FRA is between 66 and four months and age 67, depending on what year you were born.
You don't have to settle for your standard benefit, though. The key to increasing it is to wait to file for benefits until beyond your FRA. In fact, you'll need to make the decision to wait three total years beyond FRA to get the 24% boost.
Why does waiting until after full retirement age increase your benefit?
Wondering why you can increase your retirement benefit by 24% just by waiting to get your checks? The reason is simple.
Social Security was designed to provide flexibility in when you receive retirement income. You can begin getting monthly checks as soon as 62, even though that's before your full retirement age. If you make that choice, early filing penalties reduce your payments so you get more checks over your lifetime, but each one is for a smaller amount.
On the other hand, you can also choose to delay filing for benefits until after full retirement age. In this case, you're rewarded with larger monthly payments that come from delayed retirement credits. The higher amount you receive each month -- once you finally file for benefits -- should eventually allow you to catch up on lifetime payments with those who filed earlier. Under this system, it shouldn't matter when you opt to begin getting payments. If you live to your projected life expectancy, you should end up with about the same amount of Social Security funds, no matter when you filed for your first check to come.
Those who delay filing for benefits will see their monthly payment amount boosted by two-thirds of 1% per month. If you do the math, this adds up to an 8% annual increase in your standard benefit. The catch, however, is that you can only earn delayed retirement credits until age 70. After that, there's no further reward for waiting longer to begin receiving Social Security checks.
If your full retirement age is 67 and you're able to earn a two-thirds of 1% benefits increase for each month you delay beyond it, by age 70 you would have raised your standard benefit by a total of 24%. This choice would allow you to squeeze an extra 24% out of Social Security.
Now before you decide to do this, think about whether you're likely to live until your projected life expectancy to break even for a delay in benefits -- or live longer, to end up better off. While this is hard to predict, careful consideration of your health status and family health history can help you decide if using this technique to squeeze an extra 24% out of your benefits is likely to pay off in the end.