Social Security may prove to be far more vital to you in retirement than you ever imagined. Consider, for example, that according to the Social Security Administration (SSA):
- "Social Security benefits represent about 30% of the income of the elderly."
- "Among elderly Social Security beneficiaries, 37% of men and 42% of women receive 50% or more of their income from Social Security."
- "Among elderly Social Security beneficiaries, 12% of men and 15% of women rely on Social Security for 90% or more of their income."
Given all this, it's critical to get as much out of the program as you can. A lucky few can increase their benefit checks by $1,830 per month -- about $22,000 annually -- and the rest of us can still increase our future checks by 24% or more.
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How to nab that extra $1,830
Here's where the extra $1,830 comes from: If you have qualified for the biggest possible benefits and you retire in 2022 at age 62, you can look forward to collecting $2,364 per month, or about $28,000 annually. But those retiring in 2022 who have qualified for the biggest benefits who also delay starting to collect those benefits until age 70 will receive $4,194 per month. The difference between those sums is...$1,830.
If you're a maximum earner, meaning you've earned the maximum amount that counts for Social Security (currently $147,000), in each of at least 35 years, then you can look forward to that $2,364 per month -- if you retire this year at age 62. But if you're willing to delay starting to collect your benefits, they will get bigger. You can max out those benefits by waiting until age 70 -- which, for you, will happen in 2030. At that time, the maximum benefit is actually going to be significantly more than $4,194, because Social Security benefits receive regular cost-of-living adjustments -- so you'll be getting even more than an extra $1,830 per month. Hooray!
Of course, this means you'll be collecting fewer checks over your retirement. It's just that those checks will be larger than if you started collecting your benefits at an earlier time. To careful retirement planners, this calculation could make a huge difference.
How the rest of us can increase our Social Security benefits
Of course, few of us will have earned that maximum amount -- $147,000 -- in 2022, and even fewer will end up retiring having earned the maximum in each of 35 years. After all, our benefits are based on our (inflation-adjusted) earnings in the 35 years in which we earned the most. But we can still increase our Social Security benefits in multiple ways. For example:
- Earn more: If you can increase your earnings in any of your 35 highest-earning years, that will increase your ultimate benefits to some degree. You might do this by taking on a side gig for a few or many years, or by working hard to get promotions and/or better-paying jobs.
- Work longer: If you were planning to retire after 30 years of work, there will be five years' worth of zeroes factored into your benefits. Aim to work at least 35 years. If you're earning a lot by year 35, you might work a few more years so a higher-earning year can kick out a lower-earning year.
- Delay starting to collect your benefits: We can start collecting at age 62, in which case our benefit checks will be smaller (though we'll collect a lot of them), or we can delay until age 70, maximizing them. If your benefit checks at your full retirement age (66 or 67 for most of us) would be $2,000, they might be just $1,400 if you start collecting at age 62, but $2,480 if you wait until age 70. That's a difference of $1,080, or nearly $13,000 per year.
Don't leave the size of your Social Security benefits and when you claim them up to chance. Each of us should put a lot of thought into when we will be best off claiming our benefits. Learn more about Social Security and come up with a sound retirement plan.
