You've probably heard that Social Security is expected to get a big boost next year thanks to an above-average cost-of-living adjustment (COLA). But many don't realize that COLAs are only intended to help your checks keep pace with inflation -- and they don't always do that successfully.
If you want to increase your Social Security benefit's buying power, you need to take action. Here are three moves that can help.
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1. Work longer
The government bases your Social Security benefit on the amount of money you've paid Social Security taxes on during your 35 highest-earning years, adjusted for inflation. You don't need to work 35 years in order to qualify for benefits, but it's best to do so whenever possible. Otherwise, you'll have zero-income years factored into your calculation, and this will permanently reduce the size of your checks.
Even if you've already worked 35 years, remaining in the workforce could still help your future checks. Most people typically see their income rise over the course of their careers. Once they pass the 35-year mark, some of their earlier, lower-earning years drop out of their benefit calculation and are replaced by more recent, higher-earning years, leading to larger checks.
2. Choose the right time to sign up
You become eligible for Social Security at 62, but claiming then could shortchange you, especially if you live into your 80s or beyond. That's because signing up at 62 is technically considered claiming early, and every month that you do this shrinks your checks.
You must wait until your full retirement age (FRA) to sign up if you don't want to be penalized for claiming early. This is anywhere from 66 to 67 for today's workers, depending on your birth year.
You can also choose to delay benefits past your FRA and your checks will continue to grow until you reach 70. That's when you qualify for your maximum Social Security benefit. This can be the smart play if you expect to live a long time. You'll get fewer checks, but each one will be larger -- so if you live long enough, you can wind up with a larger lifetime benefit. But it's not the best option for everyone.
You should aim to choose the starting age that makes the most sense based on your life expectancy. Create a my Social Security account and use the calculator there to estimate your monthly benefit at various starting ages. Multiply these by 12 to get your estimated annual benefit. Finally, multiply these figures by the number of years you expect to claim benefits. For example, a $2,000 monthly benefit claimed for 20 years leads to a $480,000 lifetime benefit.
Find the age that offers you the largest lifetime benefit based on your estimated life expectancy and try to delay benefits until then.
3. Coordinate with your household members
Married couples and seniors with dependents should work to maximize their household's Social Security benefits, rather than just their own. If both partners have worked enough, each can claim a benefit on their own work record. But they'll also qualify for a spousal benefit, which is up to 50% of their partner's benefit at their FRA. The Social Security Administration automatically gives you the higher of your own or your spousal benefit, but you can't claim a spousal benefit until your partner signs up.
Minor children or adult children who were permanently disabled before 22 are eligible for Social Security benefits on their parent's work record. But again, they can't claim these until the worker signs up.
If you have others in your household who are eligible for benefits, it may be wiser for you to sign up early to allow the others a chance to bring even more money into the household.
It might not seem important to do these things right now, especially if you're a long way from claiming. But the steps above can help you get an accurate idea of how much you'll receive from Social Security, which will in turn help you figure out how much you need to save on your own for retirement. So find a few minutes to go through the suggestions above. Then, review your Social Security strategy every year or two to make sure it still works for you.
