Preparing for retirement is hard, and for most Americans, the money they get from Social Security will be critically necessary to help them make ends meet. The typical retired worker has to get by on just over $1,500 a month from Social Security, and while that's better than nothing, it still leaves most people needing to find income elsewhere in order to cover their living expenses.
With that in mind, it's smart to look for ways to increase what you'll get from Social Security when you retire. Below, we'll look at exactly what it'd take a typical retiree to boost that payout by $100 a month. That way, you'll have a sense of how much control you have over your Social Security destiny and what steps you'll need to take now to make higher payouts a reality.
Unfortunately, the answer of how to raise your monthly benefit $100 differs from person to person. There's no one answer that fits everyone.
For these purposes, we'll look at someone who's contemplating a 30-year career and expects to make enough money to receive the average Social Security benefit at full retirement age. The question we'll ask is this: what could this person do differently in order to get $100 more in each Social Security check? The three options below tell the story well.
1. Earn $360 more per month
Your retirement benefits from Social Security come from a formula that takes into account your average earnings. Using the formula for someone reaching age 62 in 2020, someone who's had a 30-year career would need to have average earnings of about $3,440 per month , adjusted for inflation, to generate a $1,500 benefit at full retirement age.
For the same worker to get a monthly benefit of $1,600 instead, average earnings over the same 30-year period would need to be just over $3,800 per month . That's roughly $360 more in monthly earnings, or just over $4,300 more per year.
For low-income workers, it takes less than this amount to boost their benefits by $100 a month, while high-income earners would need to increase their monthly income by a lot more than $360 to get the same bump higher. Nevertheless, the point is that you'll need to ramp up your earning capacity considerably in order to make your Social Security checks bigger.
2. Work an extra 3 years and 2 months
If boosting earnings isn't an option, then another way that most people can boost their Social Security payments is to work longer. The SSA considers your top 35 years in terms of earnings. In our example of someone with a 30-year career, the SSA puts in five years' worth of zeros in calculating average earnings toward determining your benefit amount.
Even if you earn the same inflation adjusted amount, our typical benefit recipient can get $100 a month more from Social Security by working about three years and two months longer. Again, lower-earning individuals will often get a bigger boost from extra work, while high-earning workers get a less significant increase. If you haven't worked through the 35th year, though, even a part-time job can have some impact on your monthly Social Security checks.
3. Wait 10 extra months before filing for Social Security
The last option for our typical retirement-age Social Security recipient is to wait longer before claiming benefits. For every year you wait beyond full retirement age, you get an 8% bump to your monthly payment. $100 is 6.67% of $1,500, so to turn $1,500 into $1,600 per month, you'll need to wait 6.67 divided by 8, or 0.83 years. That translates into a 10-month delay.
In some ways, though, this method differs from the other two. Giving up 10 months of payments at your old rate means forgoing $15,000 in total. That'd cover 12 and a half years' worth of extra $100 per month payments.
The lower your benefit is, the longer you'll have to wait to score a $100 per month boost using this method. By contrast, those with larger benefits can get a boost even more quickly.
Do what you have to do
It's hard to get as much from Social Security as you truly need to be financially secure. However, by understanding the variables involved, you can take steps during your career that will put you in the best possible position for success going forward.