More Social Security money can provide you with a more secure retirement. After all, cost-of-living adjustments are built into the program to help ensure buying power isn't eroded due to inflation. And benefits are guaranteed for life.
Unfortunately, the average Social Security benefit isn't very big, coming in at just $1,661 per month.
The good news is that there are ways to boost your benefits and score more money in each check. Here are the Social Security secrets you need to know to make that happen.
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1. You can increase your benefit by claiming it later
Many people don't really understand how the age when you claim benefits affects the amount you receive. But this can actually have a bigger impact than almost any other decision you make.
Every retiree is assigned a full retirement age (FRA). For those born in 1956 or later, it's between 66 and four months and 67. But you don't have to claim benefits at that age. You can start checks at 62. However, for each month you get a check before your FRA, your payments shrink. On the other hand, you can wait beyond your FRA, and for each month you delay until age 70, your benefits grow.
The impact of early or late filing is profound. If you start receiving benefits at 62 and your FRA is 67, your monthly payments could be as much as 30% smaller than your standard benefit would have been had you waited. But they could increase up to 24% compared to your standard benefit if you start at 70.
If you simply wait an extra year or more to get Social Security, your checks will be much bigger and provide more monthly income for the rest of your life.
2. Working more years at a higher salary will help your benefits
Benefits are also based on your earnings, not just the age when you claim them. Your standard benefit at full retirement age is equal to a percentage of your average inflation-adjusted earnings during the 35 years when your salary was highest.
This means, at a minimum, you'll want to work 35 years to avoid including years of $0 wages when your average earnings are calculated, since that would shrink your Social Security checks. But it can actually pay off to work even more years if your salary has gone up over time.
For each extra year you work beyond 35, one of your work years won't be counted in your benefits calculation. So putting in more years at a higher-paying job means you can replace some lower-earning years in the formula used when your check amount is calculated.
3. Coordination with your spouse can help increase your combined benefits
If you are married, you may be surprised to find how big of an impact coordinating with your spouse can have on the size of your Social Security benefit.
If you are married, you could claim spousal benefits instead of your own retirement benefits. Spousal benefits could equal up to 50% of your partner's standard benefit at full retirement age. You can only get them if your partner has already claimed retirement benefits, though. So you'll need to decide if the higher earner should start checks ASAP so spousal benefits can begin too.
On the other hand, in some cases it would pay off for the higher earner to delay their claim so they can maximize their bigger benefit. This would also result in more survivor benefits, since the last surviving person in your marriage gets to keep the higher of the two checks either partner was receiving.
If a lower earner can claim some money to keep the family afloat, this could make it possible for the higher earner to delay. This may be the better choice for some families.
4. The right type of retirement plan will let you keep more of your Social Security money
Finally, you'll want to think about what kind of retirement account you're using to save money in.
Social Security benefits become taxable once countable income exceeds a certain threshold. But only distributions from traditional IRAs or 401(k)s count when determining if benefits are taxed -- distributions from Roth accounts won't count.
If you want to be able to take as much out of your investment accounts as you'd like without worrying about rendering Social Security taxable, you should seriously think about investing in a Roth throughout your career. This could leave you with larger Social Security checks, since you won't have to give a cut to the IRS.
Now that you know these four big secrets for maximizing your monthly Social Security payment, hopefully you can make the choices you need to ensure your financial security as a retiree.
