When you start collecting Social Security benefits, the amount you receive will be dependent on how many years you work, how much income you earn during those years, and the age at which you start claiming. It's important to understand how your benefits are calculated because you can do certain things to prepare for Social Security to ensure that you will collect the highest benefit possible when the time comes.
If you had done these two things, you could land an extra $1,983 in monthly benefits next year, which amounts to close to $23,800 annually.
Delay Social Security as long as possible
The age at which you start claiming Social Security benefits can significantly impact how big your monthly checks will be.
Image source: Getty Images.
If you were born after 1960, the full retirement age (FRA) at which retirees will be eligible for 100% of their Social Security benefits is 67. However, you can opt into the Social Security program as early as age 62. But there's a penalty if you claim benefits early, which can result in a reduction of as much as 30% to your benefits.
On the other hand, by delaying benefits past your FRA, you can grow your monthly check because you're waiting longer to collect. Each year you put off collecting benefits past your FRA will increase your annual Social Security amount by 8%.
If you wait until age 70, the longest you can delay benefits, your monthly payments will be 24% higher than they would have been had you started collecting Social Security at the age of 67. In order to get higher monthly checks, you'll want to put off collecting Social Security as long as possible.
Boost your earnings
Another thing that's critical to increasing your Social Security benefits is to try and make the maximum allowable earnings, as determined by the Social Security Administration (SSA). The SSA funds the Social Security program largely by collecting payroll taxes. The annual Social Security payroll tax for employees and their employers is 6.2% each, while self-employed individuals must pay the combined 12.4%.
However, there's also a maximum amount of earnings the SSA can tax each year, and this is known as the benefit or wage base. In order to claim the highest Social Security benefits possible, individuals must work for at least 35 years because the SSA uses an individual's highest 35 years of earnings to calculate their benefits.
In order to earn the highest amount of Social Security benefits possible, a retiree's earnings during those 35 years must be equivalent to or above the benefit base.
This can be tricky, of course, because the benefit base is usually a level of earnings made by high-income earners. For instance, this year, the benefit base is $147,000, but next year, it's rising to $160,200 to account for the high levels of inflation seen this year.
How to score that extra $1,983
According to the SSA, if you earn the benefit base or more for at least 35 years and start claiming Social Security at the age of 62, which is the earliest you can start claiming benefits, the maximum Social Security check in 2023 will be $2,572 per month. This also includes the penalty for claiming benefits early.
But if you delay your benefits until 70, which adds as much as 24% to your monthly checks, and also make the benefit base or more for at least 35 years, then the maximum monthly Social Security check in 2023 will be $4,555, which is $1,983 more than the monthly benefit maximum for retiring at the age of 62.
A similar disparity exists each year, and so if you're not retiring until the future, the extra Social Security you score could be even larger that $1,983 per month.
That said, it's not easy to claim the maximum Social Security check, and it's not always the right decision. But it's certainly possible. Also, following these steps in some capacity can result in higher benefits, in general, even if it's not an extra $1,983 per check.
