The average person will pocket $1,503 per month in Social Security income in 2020, but millions of retired workers will receive $1,000 per month or less. Will you wind up collecting more in benefits than that? Skyrocketing healthcare costs make maximizing your Social Security benefits more important than ever, yet many Americans aren't familiar with how Social Security determines benefits and strategies that maximize them. Read on to learn how you can get the biggest payout possible.

1. Work 35 years or longer

Calculating your average indexed (inflation-adjusted) monthly earnings over your 35 highest-earning years is the first step to determining how much you'll collect in Social Security. Yet many people don't realize that if you work fewer than 35 years, Social Security includes zeros in your calculation, significantly reducing your benefit.

A woman sits at a desk at work.


For example, if your inflation-adjusted annual income is $40,000 over the entirety of your 35 highest-earning years, then your average monthly benefit at full retirement age would be $3,333 per month. However, if you worked only 25 years, then the 10 years of zeros included in this calculation lowers your average monthly income by 28.6% to $2,381. Those smaller checks can mean tens of thousands of dollars in lost income over a long retirement, so if you have zeros in your work record, working even part-time can boost your benefit.

Similarly, if your 35 highest-earning years includes low-income earning years caused by layoffs or a career change, holding off on retirement so you can replace those low-earning years with higher-income years will get you a bigger payday.

A senior woman stocking shelves at a grocery store.


2. Get paid to postpone Social Security 

Social Security is designed to pay you the same amount in lifetime benefits regardless of when you claim, so claiming Social Security before full retirement age results in a smaller monthly check than delaying benefits as long as possible.

The bonus associated with postponing is substantial. You'll receive 100% of your benefit amount if you claim at full retirement age, but if you claim later than that, you'll get delayed retirement credits for every month you wait, up to age 70. These benefits increase your Social Security benefit by 8% annually. Therefore, if your full retirement age is 67 and you hold off until age 70, your Social Security income will be 24% higher than it would be at 67, and 77% higher than if you claimed at age 62, the earliest claiming age possible. 

If your partner also qualifies for Social Security and you don't want to wait until 70 to retire, then consider claiming the lower-income partner's benefit early, or at full retirement age, and delaying the higher-income earners benefit until age 70. Since the bonus awarded by delayed retirement credits is a percentage rather than a fixed dollar amount, delaying the higher-income partner's benefit produces the biggest bang for your buck, potentially allowing you to have your cake and eat it too.

Postponing the higher-earning partner's benefit can also make sense for legacy planning because it can provide the biggest benefit for a surviving spouse. Widows and widowers can only collect the higher of their own benefit or their spouse's benefit, so waiting to claim the higher-earning spouses Social Security can guarantee the survivor nets the most money possible, regardless of who does first.

A piggy bank wearing glasses staring at a calculator.


3. Tap a Roth IRA

If you claim Social Security early and continue working, you could wind up failing Social Security's earnings test, which limits how much you can earn per year if you're younger than full retirement age and receiving benefits.

Specifically, Social Security holds back $1 in benefits for every $2 earned above an inflation-adjusted limit, which is $18,240 in 2020. A separate rule applies for the year in which you turn full retirement age. You can earn up to $48,600 in the months leading up to your birthday in 2020 without triggering withholding, but if you earn more than that, then Social Security holds back $1 for every $3 above the cap.

If you want to improve the odds of avoiding withholding because of the earnings test, consider investing money in a Roth IRA while you're still working. Roth IRA contributions are made with after-tax earnings, so withdrawals of contributions aren't subject to the earnings test calculation. Also, if your Roth IRA has been open five years and you're at least 59 1/2 years old, earnings on contributions can be withdrawn tax free too without counting toward the earnings limit.

Since Roth IRA withdrawals won't cause you to fail the earnings test, you could claim Social Security early, reduce your earnings from work below the annual earnings test limit, and then use Roth IRA withdrawals to fill in any gap in your monthly budget.

This strategy can also help you avoid income tax on your Social Security benefits. Why? Because Roth IRA withdrawals aren't subject to Federal Income tax, so they won't push your income above the IRS's annual earnings limit for Social Security recipients. In 2020, up to 85% of your Social Security could be subject to income tax if your adjusted earnings exceed $25,000 and $32,000, respectively. 

Everyone's situation is different, but working at least 35 years, delaying a higher-earner benefit, and using a Roth IRA to stay below earnings caps can help you maximize your Social Security benefits and thus maintain financial independence throughout your golden years.