It's not unreasonable to think you could spend seven figures in retirement, especially if you live into your 90s or beyond. Saving that much while you're also trying to cover your everyday expenses isn't easy, but fortunately, most people can expect some help from Social Security.
If you want your largest possible benefit, you need the right strategy. Here are three things you can do, even if you're not old enough to claim yet, to squeeze as much out of the program as possible.
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1. Maximize your income during your working years
The government looks at the amount you've paid Social Security payroll taxes on throughout your career when determining the size of your benefit checks. More specifically, it looks at your average monthly income over your 35 highest-earning years with adjustments for inflation. This is known as your average indexed monthly earnings (AIME).
There are two ways you can increase your AIME to secure a larger Social Security check. First, you can boost your income today. This could mean negotiating a raise, working overtime, or finding a better-paying job elsewhere.
For most people, any extra money you earn should help boost your AIME, but this isn't always the case for high earners. In 2023, you only pay Social Security payroll taxes on the first $160,200 you make. So increasing your income beyond this won't raise your future benefits at all.
The other way you can raise your AIME is by working longer than 35 years. If you earn more now than you did earlier in your career, this should work in your favor. After you cross the 35-year mark, the Social Security Administration will remove your earlier, lower-earning years from your benefit calculation and replace them with your more recent, higher-earning years, resulting in more money for you.
2. Choose the best claiming age for you
Once the Social Security Administration calculates your AIME, it plugs it into the benefit formula created in the year you turned 60 to calculate your monthly check amount at your full retirement age (FRA). This is somewhere between 66 and 67, depending on your birth year. But a lot of people don't claim then. For those who don't, the government runs an additional calculation to determine how to adjust your benefit up or down.
Claiming before your FRA can reduce your benefit by up to 30%, while delaying past your FRA could grow your checks by up to 32%. But there's no sense in delaying past 70. This is when you qualify for your maximum benefit, and the government won't reward you for waiting any longer.
You may prefer to sign up long before this, especially if you have a short life expectancy or you need your checks to help cover your essential expenses. But if you can afford to get by without them and expect to live into your 80s or beyond, you might get a larger lifetime benefit by waiting to apply.
A my Social Security account can help you if you're unsure about when to sign up. There's a tool here that can help you estimate your monthly benefit at any age based on your work history to date. Choose a few different options and multiply each benefit amount by the number of months you expect to receive checks. For example, if you think you'd qualify for a $2,000 check at 62 and would claim this for 20 years -- or 240 months -- you'd have an estimated lifetime benefit of $480,000. Try to claim at the age you believe will give you the largest lifetime payout whenever possible.
3. Coordinate with your spouse if you're married
Married people can claim Social Security on their own work records as long as they've worked enough to qualify. That means earning at least 40 credits, where one credit equals $1,640 in earnings in 2023 and you can earn a maximum of four credits per year.
But couples can also claim benefits on their partner's work records. Spousal benefits, as they're known, are worth up to half your partner's benefit at their FRA. The Social Security Administration will automatically give you the higher of your own or your spousal benefit when you sign up, but you cannot claim a spousal benefit until your spouse is also receiving Social Security.
Deciding when each spouse plans to apply for the program can help you maximize your household benefits. The right strategy depends on your situation. If both people have earned similar amounts over their lives, each might prefer to delay as long as possible. Or if one has significantly outearned the other, the higher earner might delay while the lower earner claims early to give the couple some financial assistance in the short term.
It's good to have some sort of plan, even if you aren't able to sign up right now. But stay flexible. Your financial situation or the rules regarding Social Security could change over time, and if this happens, you have to be willing to adapt your approach.
