Ideally, you'll enter retirement with a sizable nest egg that allows for generous withdrawals. Even so, you may come to depend heavily on Social Security as a supplementary source of income. And if you're low on savings, you'll especially need those benefits to make it through retirement.
While the monthly Social Security benefit you're entitled to in retirement will be based on your personal earnings history, there are steps you can take to eke more money out of the program. In fact, one savvy move on your part could result in a 24% boost to your benefits -- for life.
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Give yourself a game-changing raise
There's an easy way to give your Social Security benefits a guaranteed boost -- one that will remain in effect for the rest of your life. All you need to do is delay your filing for a full three years past your full retirement age (FRA).
FRA isn't the same for everyone. Rather, it's based on your year of birth. But if you were born in 1960 or later, FRA kicks in at age 67.
Meanwhile, for each month you delay your Social Security filing past FRA, your benefits will increase by two-thirds of 1%. That means that delaying your benefits for a full year will result in an 8% bump.
Now once you reach age 70, you can no longer accrue the delayed retirement credits that allow your benefits to grow. But if your FRA is 67 and you hold off on filing for Social Security until age 70, your benefits will increase by 24%, and that boost will be yours to enjoy on a permanent basis. It's really that simple.
Can boosted Social Security benefits take the place of your nest egg?
If you're already midway through your career and have yet to start funding an IRA or 401(k) plan, you may find it easier to just plan to delay your Social Security filing rather than adjust your spending to carve out money for savings. But that's a strategy that could backfire on you.
First of all, even with boosted benefits, you might still need income outside of Social Security to cover your senior living expenses. Also, just because you plan to delay your filing until the age of 70 doesn't mean you'll get to.
You never know when you might lose your job in your 60s, thereby having no choice but to claim Social Security right away to make ends meet. Health issues -- yours or a family member's -- might also force you to retire sooner than planned. And so you shouldn't neglect your nest egg with the idea that you'll compensate with a higher Social Security benefit.
That said, it's certainly not a bad idea to plan to claim benefits at age 70. Having a higher monthly benefit could give you more financial flexibility later in life, and it could also enable you to enjoy retirement to the fullest. And while you may need to make some sacrifices to make delaying your filing possible, it'll be more than worth it when the benefit that hits your bank account every month in retirement is 24% higher than it was supposed to be.
