Most retirees depend on Social Security to meet their cash needs, so it's important to make sure that you're getting the most out of your monthly payouts. Unfortunately, there's not a ton of flexibility to change your benefit amount as you get closer to retirement.
However, there are some key decisions that you can make to boost your monthly Social Security payout. Make sure that you're aware of the factors that determine retirement benefits, and take full advantage of all forms of payment available to you. Here are three things to keep in mind.
1. Delay taking Social Security payments
The age at which you start taking Social Security benefits is one of the biggest determinants of your benefit amount. Generally, the longer you wait to take retirement income, the larger each monthly check will be. Full retirement age (FRA) refers to the age at which someone can receive their full benefit, based on the amount paid into the system over their working life. The FRA has risen over time, but it's 67 years old for people retiring today.
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Retirees can elect to start receiving Social Security benefits as early as age 62. The benefit is reduced for every month that retirement income is received prior to FRA. If you start pulling benefits at age 62, the monthly check is 30% lower than it would be at age 67.
On the flip side, retirees can receive credits for delaying payments beyond FRA. For every year benefits are delayed, the monthly check increases by 8%. There's a cap to the credits available, and monthly benefits won't continue rising past age 70. Still, the monthly Social Security payout that starts at age 70 is around 80% higher than the payout that starts at age 62, everything else being equal.
If your goal is simply to increase your monthly payout, delaying the start of benefits is one of the simplest ways to accomplish this. However, retirees need to consider the total impact of delayed benefits. Not everyone can afford to forego Social Security earlier in retirement.
It's also important to consider cumulative income. Someone who starts taking their payout at age 62 is getting smaller checks, but they're taking monthly payments for several years before someone who starts at FRA. Even with larger checks, the person who waits until FRA will take several years to break veven in total cumulative benefits received.
2. Maximize your indexed monthly earnings
Social Security benefits are based on a retiree's inflation-adjusted earnings over their 35 highest-earning years. Higher indexed monthly earnings result in higher monthly Social Security payouts. Obviously, most people can't simply choose to have higher salaries. However, indexed earnings can be increased by timing retirement.
For example, some people have higher earning power later in their careers. Consider a 65-year-old who is currently making more than they were at age 30. In that case, delaying retirement would add a higher-earning period while removing a lower-earning period from the 35 years that are used by the SSA to calculate benefits.
This is also an important consideration for people who might have previously left the workforce to raise children, deal with health issues, or pursue academic degrees. If you have several years without any income, it can substantially reduce your indexed monthly earnings and your monthly Social Security payout.
If you want to maximize your monthly benefit, make sure that you work long enough to maximize your earnings over a 35-year sample.
3. Take advantage of spousal and survivor benefits
Some people are entitled to benefits based on their spouse's earned income. People who are at least 62 years old can receive up to 50% of their spouse's benefit amount. That payout can be even higher for someone caring for a qualifying dependent child. As is the case with your own benefits, the payout is reduced for every month that it's taken prior to full retirement age.
Survivors of deceased spouses can also claim benefits. In many cases, a retiree can receive all of their spouse's Social Security income. Reduced amounts are also available based on age, disability status, or the presence of qualifying dependent children.
Spousal and survivor benefits obviously don't apply to all situations, but many people can increase their monthly payouts by taking full advantage of these provisions.
