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Determining how to maximize your Social Security benefits isn't as hard as you might think. That's because the size of your benefits is a function of only two variables: how much you earned over your working years, and the age at which you elect to begin receiving them.

The single most important number to keep in mind in this regard is your primary insurance amount. This is the amount you'll receive each month in Social Security benefits if you take them at your full retirement age, which is currently between 66 and 67 for people qualified to apply for benefits before the year 2021. After that, the full retirement age increases to 67.

The trick, then, is to figure out how the Social Security Administration calculates one's primary insurance amount. Here's how it does so: It takes the income in your 35 highest-earning years, adjusts the numbers for inflation, takes an average of the inflation-adjusted figures, and then runs that average through a three-tiered formula that gives you progressively less credit for higher levels of income.

More specifically, after calculating the inflation-adjusted average of your 35 highest-earning years, the Social Security Administration calculates your primary insurance amount as such:

  • It takes 90% of the first $856 of your inflation-adjusted average monthly earnings,
  • adds 32% of the amount between $856 and $5,157,
  • and adds 10% of the amount above $5,157.

It accordingly stands to reason that the more you earn during your working years, the higher your primary insurance amount will be. To people on the cusp of retirement, then, if you're earning more today than you were three decades ago, then each additional year that you work now will increase your inflation-adjusted average monthly earnings and thereby boost your primary insurance amount.

Delaying retirement in this way also boosts your benefits in a second way. This follows from the fact that calculating your estimated primary insurance amount is only the first of two steps that dictate how big your monthly Social Security check will be.

In an effort to be both flexible and fair, the Social Security Administration allows people to apply for benefits at any time between the ages of 62 and 70. But to make sure that people applying early don't end up with substantially more than people who wait, it debits or credits your primary insurance amount depending on the age at which you apply for benefits. The average person should thus receive the same in lifetime benefits regardless of the age at which they begin receiving them.

If you apply at the earliest possible time -- that is, at age 62 -- then your monthly benefit amount will be about 30% less than your primary insurance amount, assuming that your full retirement age is 67. Here are the estimated reductions by filing age after that:

  • 63 is about 25%
  • 64 is about 20%
  • 65 is about 13.3%
  • 66 is about 6.7%

By the same logic, if you wait to take benefits until after you reach your full retirement age, then you get delayed retirement credits. These increase your benefits by 8% for each full year that you delay taking them. Consequently, assuming that your full retirement age is exactly 66, then your actual benefits could be as much as 32% higher than your primary insurance amount if you wait until 70 to take them.

In sum, if you're interested in figuring out how to maximize your Social Security benefits, then the one thing to keep in mind is that the longer you wait before applying for them is the most effective way to do so.