Social Security checks saw a significant boost at the start of the year, but they still don't go as far as many would like. Most people think they're stuck with what they get because the government sets the formulas for calculating benefits. But if you understand how these formulas work, you can identify strategies that will help you squeeze more out of the program.
Here's a move that could add up to 24% to your monthly Social Security checks, and it's an option for those who are already claiming and those who haven't signed up yet.
It all comes down to timing
There are two major factors that influence the size of your Social Security benefits: your income during your working years and your age at signup. Most people understand that a larger income over your career translates to larger Social Security checks in retirement. But not everyone is as familiar with the way age shapes our benefits.
The government assigns everyone a full retirement age (FRA) based on their birth year. For most people alive today, it's somewhere between 66 and 67. You must wait until this age to sign up for Social Security if you want the full benefit you've earned based on your work history. But you can start claiming as early as 62 if you'd like.
The consequence for doing so is smaller monthly checks. The government reduces your benefit slightly for each month you claim benefits under your FRA. Or, put another way, it rewards you for every month you delay benefits after you become eligible. And that doesn't stop when you reach your FRA.
You can continue growing your checks by delaying benefits up until you turn 70. That's when you qualify for your maximum benefit. Your checks will grow by two-thirds of 1% per month between your FRA and 70. So for the majority of workers today who have an FRA of 67, it's possible to grow your checks by up to 24% simply by waiting until 70 to apply.
Of course, this isn't feasible -- or even wise -- for everyone. Some people need to begin Social Security sooner so they can pay their bills. And others may not live until 70 or may not live long enough to make delaying benefits worthwhile. Generally, you need to live until your mid-80s or beyond in order for delaying until 70 to help you claim a larger lifetime benefit.
But even if you cannot or choose not to delay benefits this long, you could still grow your checks a little by delaying Social Security for a few months or a few years. You'll grow your checks by anywhere from five-twelfths of 1% per month to two-thirds of 1% per month, depending on your age at the time. Delaying by one year could grow your benefit by anywhere from 5% to 8%.
What if you're already claiming?
Delaying Social Security to maximize your lifetime benefit is most easily done when you haven't started claiming yet. But seniors who are already receiving checks still have a few options for increasing the size of their monthly benefit.
If you've begun claiming Social Security within the last year, you may be able to withdraw your Social Security application. But in order to do this, you must pay back all the money that you and anyone else claiming on your work record has received from the program to date.
The government treats those who pull this off as if they've never claimed Social Security before. They can continue to accumulate delayed retirement credits until they're ready to apply again. But this is a one-time deal. The second time you claim, you can't reverse your decision.
Those who have been receiving Social Security benefits for longer than one year or those who aren't able to pay back the money they've received thus far can still suspend benefits once they reach their FRA. If you do this, the government will stop sending you checks until you either request that they start again or you turn 70. During the time you're not receiving Social Security, your checks will grow by two-thirds of 1% per month, as mentioned.
But this strategy only works if you're able to fund your retirement without Social Security for a while. Those who aren't able to do this won't be able to grow their checks any further. However, they can still look forward to annual benefit increases through cost-of-living adjustments (COLAs).
It's ultimately up to you to decide when to claim Social Security. But if you weren't aware of how your age affects your checks, you may want to review your plan. You can always change your mind if your circumstances change as you near retirement. But having a claiming strategy in place can go a long way toward helping you figure out how much you must save for retirement on your own.