If you think most of your retirement income will come from Social Security, think again. The average monthly Social Security retirement benefit was recently $1,677 -- totaling about $20,000 per year. Yes, you might collect more, but probably not that much more. The maximum monthly payout is currently $4,194 (about $50,000 annually), and it's quite difficult to qualify for that.
So no matter your age right now, it's smart to learn a bit more about Social Security and be aware of steps you can take now and later to maximize what you get out of the program. Here are four solid strategies to consider.
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1. Earn as much as you can
This is probably obvious, but the more you earn in your working life, the bigger your Social Security checks will be -- to a degree. There's an earning cap for each year, beyond which earning more won't increase your benefits. For 2022 it's $147,000, and for 2023 it's $160,200.
Assuming you're not earning those maximums, think about how you might increase your earnings in the years to come. There are multiple strategies to consider, such as:
- Take on a side gig or two, for a few or many years. A quick online search will turn up gobs of possibilities, such as driving for a ride-sharing service, renting out part or all of your home, making and selling things, walking dogs, tutoring kids, and giving music or language lessons.
- Ask for a raise at work -- at least every few years. Such requests are often granted, and even if you receive a smaller raise than you asked for, it's an increase in income.
- Get a new, better-paying job. This might even involve launching a new career, for which you have to earn an additional degree or certification.
2. Aim for age 70
Next, think about when you might start collecting your Social Security retirement benefits. You can do so as early as age 62, at your full retirement age (which is 66 or 67, or somewhere in between), or as late as age 70.
Starting to collect early will shrink your benefits, but you'll get many more checks. Delaying beyond your full retirement age will beef up your checks by about 8% per year (up to age 70), but you'll get fewer checks in total.
The following table shows what percent of your full benefits you'll receive, depending on when you turn on the spigot:
|
Start Collecting at: |
Full Retirement Age of 66 |
Full Retirement Age of 67 |
|---|---|---|
|
62 |
75% |
70% |
|
63 |
80% |
75% |
|
64 |
86.7% |
80% |
|
65 |
93.3% |
86.7% |
|
66 |
100% |
93.3% |
|
67 |
108% |
100% |
|
68 |
116% |
108% |
|
69 |
124% |
116% |
|
70 |
132% |
124% |
Data source: Social Security Administration.
If you can manage it, it's often best to aim to delay collecting until age 70. Not everyone can do so, though, as many people simply need that income earlier.
3. Tap your retirement accounts if you need to
If you want to delay collecting until age 70 and you have one or more retirement accounts you can tap, doing so can help make this possible. For example, you might withdraw funds from an IRA or 401(k) account more aggressively for a few years until you hit age 70. Then you can ease up on the withdrawals as they'll be supplemented by Social Security income that you have maximized.
Be sure to run the numbers to see what makes the most sense for you, and don't be shy about consulting a good financial advisor, either -- this is very important stuff.
4. Maximize those COLAs
Finally, know that if you've maximized your benefits as much as possible, you will also have maximized your cost-of-living adjustments (COLAs) that the Social Security program applies to benefits in most years.
For example, the COLA increase for 2023 is unusually large, at 8.7%. (It's often been closer to 2%, 3%, or 4% in the past.) If you're currently collecting, say, $2,000 per month, your 8.7% increase will be $174 per month, bringing your benefit to $2,174. If you got your benefit up to $3,000, though, your 8.7% increase will be $261 per month, increasing your monthly benefit to $3,261.
Don't ignore Social Security, thinking there isn't much you can do about it. The more you know and the smarter the moves you make, the more you can get out of it.
