There aren't a lot of guarantees in retirement, which makes the idea of a monthly Social Security check all the more comforting. As long as you've worked for at least 10 years, you will get some money from the program, but you're probably hoping for more than a couple of hundred dollars a month.
Maximizing your Social Security benefit requires an understanding of how it's calculated and how your decisions affect it. Here are five tips if you're trying to get the most out of Social Security.
1. Work as long as you can
Your Social Security benefit is based on your average monthly earnings, adjusted for inflation, over your 35 highest-earning years. You should aim to work at least that long because if you don't, you'll have zeroes added into your benefit calculation, reducing the size of your checks.
Working even longer than 35 years is ideal because your lower-earning years will be replaced by higher-earning years, and that will increase your benefit. If you're not sure how many years you've reported income for, you can check your earnings record (more on that below) to find out.
2. Check your earnings record annually
The Social Security Administration tracks your annual income in your earnings record, which you can access by creating a my Social Security account. This is the income your benefits are based on, so you must verify that it's correct every year or you could cost yourself benefits.
Usually, the information is accurate. But small errors, like transposing digits in your Social Security number or failing to report a name change to the government, could result in the government not registering your income for a certain year. If this happens to you, fill out a Request for Correction of Earnings Record form and submit this to the Social Security Administration, along with any documentation you have, like tax returns, that prove your income for the year in question.
3. Seize every opportunity to increase your income
Anything you do to increase your income today will help your Social Security benefits in the future because they're based on your average monthly income during your working years. You can try working overtime or starting an extra job, but be careful not to burn yourself out. It won't make that much difference to your Social Security benefits if you're only able to keep it up for a few months.
Look for ways to permanently boost your income, like switching employers, negotiating a raise, or pursuing a promotion. These changes are likely to have more-lasting effects on your income, and they don't necessarily require working yourself to the bone.
4. Choose your starting age carefully
The age you choose to begin benefits also affects the size of your checks. You must wait until your full retirement age (FRA) to get the full benefit you're eligible for. This is 66 or 67 for today's workers. You're able to start as early as 62, but then you get less per check. You'll only get 70% of the benefit you'd be entitled to at your FRA if you begin at 62 and your FRA is 67. Those with an FRA of 66 get 75% of their scheduled benefit per check if they start at 62. Every month that you delay benefits increases your checks until you reach the maximum benefit at 70. This is 124% of your scheduled benefit per check if your FRA is 67, or 132% if your FRA is 66.
Delaying makes sense if you expect to live a long time and you want to get the largest checks possible. But if you have a terminal illness, starting early might make more sense. You might also have no choice but to start early if you need your Social Security benefits to help you cover your basic expenses. Look at a few scenarios to figure out which starting age works best for you.
5. Watch out for taxes
You know about the Social Security taxes that come out of your paychecks, but not everyone is aware that the government can tax your Social Security benefits if your combined income exceeds certain thresholds. Combined income is your adjusted gross income (AGI) plus any nontaxable interest and half of your Social Security benefits. Individuals with a combined income exceeding $25,000 and married couples with a combined income exceeding $32,000 could owe taxes on up to 50% of their benefits. Individuals with a combined income exceeding $34,000 and married couples with a combined income exceeding $44,000 could owe taxes on up to 85% of their benefits.
A complete discussion of Social Security benefit tax is beyond the scope of this article, but here's a guide if you want to learn more. Do your best to stay below these thresholds if you want to avoid benefit taxes. If you have Roth retirement savings, these are great to fall back on as you approach the thresholds listed above because these withdrawals don't count toward your taxable income for the year.
Even if you're a long way from claiming Social Security, it's never too early to start thinking about it.