Many people struggle to make ends meet in retirement, and Social Security benefits are essential in providing financial support after people finish their careers. Making the most of Social Security is an important part of ensuring your financial security in retirement. To do so, you have to start thinking about Social Security during your career.
The calculation for Social Security benefits takes into account several factors, but one of the most important is your income. Depending on how much you earn over the course of a 35-year career, the size of your monthly benefit at full retirement age can vary from a few hundred dollars to more than $3,000.
Let's take a closer look at what you have to do to earn a bigger Social Security check.
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For low-income earners: Boost your annual pay by $1,333
The formula for Social Security pays you 90% of your average indexed monthly earnings up to a certain amount, which varies from year to year. For those becoming eligible for Social Security retirement benefits in 2020, the figure is $960 per month.
Because Social Security replaces nearly all of the earnings a low-income worker brings in, it doesn't take too much to get a $100 monthly boost to your benefits. For instance, if you make $10,000 on average each year for 35 years after indexing for inflation, then your Social Security monthly check should be around $750. To get $850 a month, you'd need $11,333 annually -- or $111 in extra wages each month.
For middle-income earners: Earn $3,750 more each year
Above that low-income limit, Social Security replaces a far smaller amount of your work income. For monthly earnings between $960 and $5,785, you'll get 32% of those earnings added to your Social Security check. So if you make $1,960 on average each month for a 35-year career, then you'd 90% of the first $960 plus 32% of the next $1,000, which adds up to $1,184 per month.
To get yourself to $1,284 per month, you'd need to increase your monthly earnings to $2,272.50. That's $312.50 more in average monthly income, which works out to $3,750 in additional earnings over a 12-month period.
For high-income earners: Add $8,000 to your yearly earnings
Finally, for top-tier income earners, Social Security's replacement income falls to just 15%. It therefore takes a whole lot more in extra earnings to move the needle on your Social Security check.
For instance, take someone who earned $100,000 a year on average after indexing for inflation over a 35-year career. Average monthly earnings of $8,333 translate into a monthly benefit of $2,790. To turn that into $2,890 per month, you'd need your income to rise to $9,000 per month, or $108,000 per year.
Strive for 35
One thing to keep in mind as well is that when it comes to boosting your average career earnings, there's a big opportunity to boost your Social Security if you haven't yet worked a full 35 years. In calculating average monthly income, the Social Security Administration fills in missing years with zeros. That can pull your career average down dramatically.
If you're nearing the end of your career but you haven't had income in 35 years, working an extra year can have a disproportionate positive impact. By replacing a zero with a good-sized number, the impact on your average will be greater than you might think.
If you can boost your Social Security benefits, then it can give you a more comfortable retirement. Take a look at what you can do to increase your earning power and then see how it'll have a positive impact on your retirement income after the end of your career.
