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Stop Guessing: Here's How to Exactly Maximize Your Social Security

By Chuck Saletta – Aug 15, 2021 at 4:30PM

Key Points

  • Make sure you have at least 35 years of earned income.
  • Reach the earnings cap for each of those years.
  • Claim at age 70.

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Three key factors make all the difference in determining how large your Social Security benefit will get.

Social Security provides a foundation for most Americans' retirement plans. Still, it's a pretty complicated system where nobody -- not even Social Security itself -- can tell you exactly what your benefit will be until you actually file to start collecting it.

That can make it a bit frustrating to try to plan around the program. Still, if your objective is to maximize your benefits, there's good news. There are just three key factors that you have to address in order to get the most possible out of Social Security. So if that's your goal, you can stop guessing. Here's how to exactly maximize your Social Security benefits.

A couple with a Social Security card with a dollar bill in the center of it.

Image source: Getty Images.

First, work more years

Your Social Security benefit is based on your highest 35 calendar years' worth of covered earnings . If you haven't worked 35 years in a covered job, then some of those years will count for $0 in your benefit calculation. If you've worked for more than 35 years, Social Security will pick the highest 35 to count for your benefit.

Note that it's not quite as simple as looking back over your earnings history and reading off the amount of your salary subject to Social Security taxes. Your earnings are indexed each year up until you reach age 62 based on changes to average wages since then , and it's your highest indexed earnings that count.

This does mean that if you've worked 40 years by the time you retire, you'll get no direct benefits from five years' worth of the taxes you've paid into the system. Still, if the choice is between benefits based on five years of low earnings vs. five years of high earnings, then the trade-off is probably worth it.

Next, earn more money each year -- up to a point

Each year, Social Security taxes are levied starting with the first dollar you earn through work, up to a cap on your earned income. In 2021, that cap is $142,800.  It doesn't matter if your earnings come in through working one job, adding a side hustle, or stringing together multiple jobs. If you earn it and Social Security taxes that income, it counts toward your cap for the year.

If your covered earnings top that limit at any given employer, that employer should stop collecting Social Security taxes once you've reached the cap. If you string together multiple jobs to cross that cap, then you will likely see taxes continue to be withheld unless you reach the cap from any one employer. If that happens to you, don't despair -- you can get the employee side of that overpaid tax back as a credit when you file your taxes. 

Finally, claim your benefits when you turn 70

When it comes to claiming your Social Security retirement benefits, you can start at any age once you've reached 62. The longer you wait, up until age 70, the higher each monthly benefit check will be.  Of course, this involves trade-offs.

For one, the later in life you start collecting, the fewer total checks you will receive. That may turn out to be less total money over your lifespan, depending on how long you live. On a somewhat related note, consider how active you'll be later in your retirement versus early in it. It may make sense to get your money earlier and have it available when you can best make use of it, instead of having a bit more come in each month later, when it matters less to your lifestyle.

In addition, remember that if you're not collecting Social Security, you have to cover your costs by some other means. That means you'll either need to be working or have a pension or other savings that can cover your costs while you wait to start your Social Security benefit. On a somewhat related note, know that Medicare's hold-harmless provision only applies if your Medicare Part B premiums are deducted directly from your Social Security benefit.

Get started now

By making the most of these three factors, you can get your highest possible Social Security benefit. To truly get the maximum possible -- which in 2021 is $3,895 per month -- you need to hit the earnings cap for 35 calendar years. With this year still having a few months left, you may be able to boost your earnings enough to make 2021 a year in which you reach that cap.

The sooner you start, the more working years you have available to reach for that annual earnings cap. Still, if you don't have enough working years left before you retire, don't despair. By doing what you can to move toward each of those three targets, you will be getting closer to that maximum benefit. So get started now, and put yourself further along the path of the maximum Social Security benefit.

Chuck Saletta has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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