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For many retirees and pre-retirees, Social Security will play an integral role in ensuring that their month-to-month expenses are taken care of. A recently updated Gallup poll showed that nearly 9 in 10 current retirees count on Social Security income to some degree each month, while around 80% of surveyed pre-retirees expect to do the same in retirement.
However, Social Security's future is still very much up in the air. While the program isn't going bankrupt, demographic shifts, which include the retirement of baby boomers and lengthening life expectancies, could wind up pushing benefits lower across the board. The latest report from the Social Security Board of Trustees has forecast that a 21% drop in benefits would be needed to sustain the program through 2090. Since workers and seniors simply can't count on Congress to get a fix in place, they need to be focused on ways to increase their Social Security benefits come retirement.
The obvious way to boost your Social Security income is to simply wait to file for benefits. Social Security benefits grow by approximately 8% on annually, though your monthly distribution is dependent on your individual full retirement age, or FRA. Your FRA is a dynamic number that's based on your year of birth, and it represents the point at which you become eligible for 100% of your benefits. Retire before your FRA, and your benefit could see a reduction of 25% to 30% from what it would be at your full retirement age. Wait until age 70, the point at which benefits stop accruing, and it could be anywhere from 24% to 32% higher than at your FRA. Waiting as long as possible means a juicier benefit later.
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Four unconventional ways to boost your Social Security income
But there are other, unconventional ways you can boost your benefit. Here are four such methods.
1. Pull a Social Security mulligan
It's a rule I'd bet most retirees and pre-retirees aren't aware of, but Social Security allows seniors a do-over should they regret taking their benefits early.
Social Security Administration Form 521, officially known as the Request for Withdrawal of Application, allows seniors to withdraw their request for Social Security benefits within the first 12 months following the filing of their application to receive benefits. There are two key catches here. First, Form 521 has to be filed within the first 12 months of claiming benefits -- an important requirement. Second, you'll need to pay back every cent you and your family may have received from the SSA based on your earnings history in order for your withdrawal claim to be undone. If you pay back what you received from the SSA, then it'll be as if you never filed a claim in the first place, and your benefits will continue growing at roughly 8% per year.
A Social Security mulligan is a particularly smart move for seniors who've struggled to get a job in their early to mid-60s, but wound up landing a well-paying job a few months after signing up for Social Security benefits.
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2. Work yourself into a higher benefit check
Seniors may also not be aware that if they file for benefits before reaching their FRA and earn over a certain amount, the SSA can withhold some, or all, of their benefits.
This year, the SSA is allowed to withhold $1 in benefits for each $2 in earned income over $15,720 for individuals receiving benefits who have not reached their FRA. If you'll reach your FRA in 2016 but have not yet done so, the SSA can withhold $1 in benefits for each $3 in earned income over $41,880. Based on a recent press release from the SSA, these thresholds are increasing to $16,920 (or $100 extra a month) and $44,880 ($250 extra a month), respectively, in 2017.
On one hand, these thresholds reduce your expected take-home pay if you're still working and hoping to double-dip with your Social Security benefit. On the other hand, you don't lose this money if it's withheld by the SSA: It's returned to you after you reach your FRA in the form of a higher monthly benefit payment. Thus, you may be able to work between ages 62 and 66, save a few extra dollars, and have your withheld benefits translate into a bigger monthly benefit upon hitting your full retirement age.
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3. Be mindful of where you retire and how much you make
A third unconventional method to boost your Social Security income is to move to or retire in a state that has a tax-friendly policy toward Social Security benefits and retirement income in general.
Some people may not be aware that the federal government does indeed tax Social Security benefits. If an individual earns more than $25,000 annually, or joint filers more than $32,000 annually, the federal government subjects a percentage of Social Security benefits to ordinary income taxation. Anything below these levels is free of federal taxation. This means a little tax planning, such as leaning on a Roth IRA during retirement, could be worthwhile. A Roth IRA doesn't count toward your adjusted gross income, and eligible withdrawals are tax-free for life.
More importantly, 13 states also tax Social Security benefits. Nine of these states have varying degrees of income exemptions, while four -- Vermont, Minnesota, North Dakota, and West Virginia -- mirror the federal tax schedule for Social Security benefits. If you avoid these states during retirement, you may be able to decrease what you'll hand back in taxes, meaning more money remains in your pocket.
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4. Use your kids to boost family Social Security benefits
A final unconventional way to increase your household's Social Security income is to take advantage of children's benefits for Social Security when available. It's quite uncommon, but in cases in which a parent is old enough to qualify for Social Security (age 62 and up) and certain criteria are met, children can receive up to half of the parent's benefit to avoid reduction in the benefit that the parent receives. In order to qualify, children would need to be:
- Unmarried
- Under the age of 18
- Under the age of 19 and still a full-time student in high school
- Or, 18 or older and disabled (with the disability beginning before age 22)
It should be noted that adopted and dependent stepchildren can sometimes qualify. Likewise, children can in some rarer cases qualify for benefits based on the earnings history of a grandparent who is their guardian. The more common situation involving Social Security and children's benefits occurs when a parent dies, with the survivor benefit for children being up to 75% of the parent's Social Security benefit. Nonetheless, if you're of Social Security retirement age and your kids also qualify, you may be able to substantially boost your household income.
