A big Social Security check can go a long way toward increasing your financial security in your later years. Although having other income to go along with your retirement benefits will be important, you'll definitely want to make smart choices to get the largest Social Security checks you can since this is an income source guaranteed to last for life.
The good news is, there are four secrets to know about so you can make the best possible choices to maximize your monthly income. Here's the insider info you should be aware of to boost your benefit.
1. Delay your benefits claim
Delaying pays off big time because of the way Social Security is designed. You can get benefits as early as your 62nd birthday, but each year you delay until age 70 will result in an increase in your payments. This increase comes because:
- You can avoid early filing penalties that would be applicable if benefits were claimed ahead of full retirement age (FRA).
- You can earn delayed retirement credits applicable if benefits are claimed after full retirement age.
Early filing penalties equal 5/9 of 1% per month for each of the first 36 months benefits are claimed before your FRA. These add up to a 6.7% annual reduction over 12 months. If benefits are claimed more than 36 months before FRA, an additional penalty of 5/12 of 1% applies monthly. This adds up to another 5% annual reduction.
Delayed filing credits equal 2/3 of 1% per month for any month that benefits are forgone after full retirement age. They can only be earned until age 70. A full year of these credits will raise your payment by 8%. Your full retirement age is determined by birth year, but for anyone born in 1956 or later, it's between 66 years and four months and 67 years.
These credits and penalties can have a huge effect on increasing (or decreasing) checks. If you have an FRA of 67 and would've been entitled to a $1,600 benefit at that age, you'd shrink your checks to $1,120 if you started them at 62 or increase them to $1,984 if you waited until 70. If you're aiming for a bigger check, the right course of action should be obvious.
2. Work for more than 35 years
Another secret to scoring bigger Social Security checks is to put in more years on the job if doing so will increase your average wage.
The amount of money you're entitled to at full retirement age is based on your average earnings in the 35 years you earned the most. If you've increased your salary over your career -- or had some years when you didn't earn much because you were unemployed part of the time or otherwise took time off -- working an extra year or more at your current higher pay rate can increase the average wages used in your benefits formula.
The higher-earning years will become part of your average instead of the years when you earned less.
3. Be smart about the retirement account you invest in
A growing number of Social Security retirees are subject to tax on their benefits each year because the income threshold at which benefits become taxable on the federal level isn't indexed to inflation.
Single tax filers with a countable income over $25,000 are hit with taxes on part of their Social Security benefit, as are married joint filers with countable income above $32,000. The key word, though, is "countable." Not all income counts. Half of Social Security benefits do, plus all taxable income and some nontaxable income.
If you used a traditional retirement account such as a 401(k) or IRA, distributions from it will be taxed as part of your countable income. But distributions from a Roth retirement fund don't count. So if you want to make your checks bigger by avoiding federal taxes, you may want to consider investing in a Roth for your retirement.
4. Choose your retirement location strategically
Finally, you should think about where you want to retire.
If you live in one of 12 states that tax Social Security, your benefit checks could shrink due to your obligations to your local government. Opt for one of the 38 states where Social Security checks aren't taxed and your payments will be bigger since you get to keep more of your money.
Now you know the four secrets to supersizing your Social Security checks. This will equip you to do all you can to bring in the most income possible as a retiree.