Social Security supports countless retirees, and understanding how it works can help you get the most out of your benefits. Whether you're planning to claim Social Security in the coming years or are decades away from becoming eligible for benefits, here are three wise moves that will serve you well financially.
1. Hold off on taking benefits for as long as possible
Though your Social Security benefits are based on how much you earned during your career, the age at which you initially file for them can impact your ultimate payout. The Social Security Administration designates a full retirement age (FRA) for workers, and that's the age at which you can collect your benefits in full. Your FRA is based on your year of birth, as follows:
|
Year of Birth |
Full Retirement Age |
|---|---|
|
1943-1954 |
66 |
|
1955 |
66 and 2 months |
|
1956 |
66 and 4 months |
|
1957 |
66 and 6 months |
|
1958 |
66 and 8 months |
|
1959 |
66 and 10 months |
|
1960 |
67 |
DATA SOURCE: SOCIAL SECURITY ADMINISTRATION.
You are allowed to claim Social Security as early as age 62, but doing so will result in a permanent reduction in benefits. On the other hand, if you hold off on filing for Social Security past FRA, you'll increase your benefits by 8% for each year you delay, up until age 70.
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Let's say you were born in 1962, your FRA is 67, and your full benefit amount is $1,600 a month. If you hold off until age 70 (which is when the incentive to delay runs out), you'll boost your monthly payments to $1,984. That's an extra $384 each month in your pocket -- for life.
Not only will waiting on Social Security increase your own benefits, but it'll also boost the survivor benefits your family is eligible for. Imagine your spouse ends up outliving you by 15 years. Having an additional $384 a month for that long a period could be huge, so when you think about postponing your benefits to get the most cash, consider the impact on your survivors as well.
2. Work a few extra years
Your Social Security benefits are calculated based on your top 35 years of earnings. If you're like most people, you probably started out with an entry-level job, at which point your salary wasn't much to write home about. But if your compensation has since peaked, and you're able to keep doing whatever it is you do for a few extra years past when you initially expected to retire, you'll boost your benefits by replacing some lower-earning years with higher-earning years when the Social Security Administration calculates your payout.
Here's an example. Say you worked exactly 35 years during your career, and in your first year on the job, you made $20,000 (adjusting for inflation). If you're currently getting paid $100,000, and you work one extra year at that same salary, you'll replace the $20,000 that would've gone into your personal earnings calculation with $100,000, thus boosting the benefit amount you're eligible for, and the amount your survivors are eligible for as well.
3. Fight for raises throughout your career
We just learned that your Social Security benefit payments are linked to your specific earnings record. It Therefore making more money during your career will increase the amount you collect each month as a senior. That's why it really pays to fight for raises, consistently, throughout your working years.
Keep in mind that the more money you make at a given job, the higher your compensation is likely to be at the next job you take as well. If you never ask for a raise, you could end up limiting your earnings on a long-term basis, which will not only impact your daily quality of life, but also result in a lower benefit payout.
Though Social Security isn't designed to take the place of independent savings, the benefits you get will no doubt be a huge factor in your retirement finances. That's why it's crucial to read up on Social Security and find ways to maximize your benefits, both during your working years and in the period leading up to retirement. The more strategic you are, the more you stand to gain in the long run.
