Social Security benefits can potentially make or break your retirement. They're a major source of income for millions of retirees, with nearly half of married beneficiaries relying on Social Security for at least 50% of their income, according to the Social Security Administration, and 21% depending on it for at least 90% of their retirement income.
One problem with depending too heavily on Social Security, however, is that the average check only amounts to around $1,400 per month. For most people, that's not enough to pay the bills, let alone enjoy a comfortable retirement.
Your best bet to increase your retirement income is to boost your personal savings so that Social Security benefits are a supplemental source of income and not your sole source of income. But even with a heftier retirement fund, there's no harm in increasing your Social Security benefits as well. Fortunately, there are a few simple ways to earn fatter checks every month.
1. Hold off on claiming benefits
Exactly how much you receive in benefits is largely dependent on the age at which you claim them. The only way to earn the full amount you're theoretically entitled to each month is to claim once you reach your full retirement age (FRA). Claiming benefits any earlier than that (as early as age 62) will result in a reduction in benefits, while if you wait until after your FRA to claim (up to age 70), you'll receive extra money each month.
In theory, your total lifetime benefits should be roughly the same regardless of what age you claim. If you claim at 62, you'll receive more checks over a lifetime, but they'll all be relatively small. Wait until age 70 to claim and you'll receive fewer checks overall, but they'll each be bigger.
However, the system doesn't always work perfectly, and if you anticipate spending several decades in retirement (which is a good possibility, considering the Social Security Administration predicts a third of today's 65-year-olds will live past age 90), delaying benefits may be the way to go. Not only will you be receiving more money each month, but over a lifetime, your total benefits will outweigh what you'd have received had you claimed earlier.
That extra money can add up significantly over the years, too. Say your FRA is 67 years old, and you'd be receiving $1,400 per month by claiming at that age. If you'd claimed at 62, your benefits would be reduced by 30%, leaving you with $980 per month. Claim at age 70, and you'd receive a 24% boost on top of your full benefits, giving you a monthly total of $1,736. Let's also say you live until age 90. If you'd claimed benefits at age 62, you'd have accumulated around $330,000 in benefits over 28 years. But by claiming at age 70, even though you'd have spent fewer years receiving benefits, you'd have earned around $417,000 in lifetime benefits by age 90.
2. Boost your income while you're still working
The Social Security Administration considers your 35 highest-earning years when calculating how much you'll receive in benefits, so by increasing your income while you're still working, you're also increasing your monthly benefits.
For 2019, the maximum annual income that's subject to Social Security tax is $132,900 -- so until you've hit that limit, the more you earn, the higher your benefits will be once you start claiming them.
Exactly how much more you'll receive in benefits is determined by a somewhat complex formula. Essentially, the Social Security Administration will take the average of your 35 highest-earning working years, then divide it by 12 to calculate your average indexed monthly earnings. That number is then run through another formula (which changes slightly each year) to determine your basic retirement benefit, and then it will be adjusted for cost of living changes.
In short, though, because your benefit is based on an average of your top-earning years, bringing in extra money to boost your annual income can raise your average -- thus also increasing your benefits.
3. Work an extra few years
Because your benefits are based on your 35 highest-earning years, by working a few extra years when you're at the peak of your career (and probably earning more than ever), you may be able to replace a few of your early working years (i.e. your lower-paying years) with higher-paying years. As a result, your average indexed monthly earnings will be higher, and so will your monthly Social Security benefits.
Also keep in mind that you can continue working even after you've claimed Social Security, but by doing so, your benefits may be temporarily reduced. In the years leading up to your FRA, your benefits will be reduced by $1 for every $2 you earn above 2019's annual income limit of $17,640. Then in the year you reach your FRA, your benefits will be reduced by $1 for every $3 you earn above $46,920.
These reductions are only temporary, though, and after you reach your FRA, your checks will be adjusted to make up for the time that benefits were withheld. That, then, will leave you with even bigger checks.
So, in theory, to receive as much as you can from Social Security, you could increase your income while you're still working, work until age 70, and wait to claim benefits until age 70. As a bonus, working longer and increasing your income can also help build a stronger retirement fund, so you'll be able to draw more from your personal savings during retirement while also receiving bigger Social Security checks.
Social Security isn't intended to be your only source of income in retirement, but if your savings are sparse, you may need to make do with what you have. If that's the case, maximizing your benefits can make retirement much more enjoyable.