Many people don't realize that they can boost their Social Security benefits by making some key decisions. Social Security is the most important part of many households' retirement plans, so it's a great idea to educate yourself on the factors that determine monthly payment amounts and the programs available to you.
1. Delay taking your benefits
Your monthly Social Security check size is based on a few different factors, and the age that you start receiving benefits is one of the most important ones. People can take benefits as early as 62, but the benefit increases for each month you delay through age 70. The later you start, the larger the check.
You receive 100% of your benefit if you elect to commence payments at full retirement age (FRA). FRA is either 66 or 67 for people currently approaching retirement, depending on their birth year. Social Security payments can increase up to 24% through delayed retirement credits if you're able to wait until age 70 to start claiming.
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For example, a retiree who's entitled to the average Social Security benefit of $1,827 at FRA could increase that monthly payment to $2,265 by holding off an additional three years. That works in the opposite direction if you decide to turn on the benefit stream earlier. If you elect to receive payments at age 62, the monthly check would only be $1,279 in the above scenario.
Obviously, your monthly check size can't be the only consideration when you're deciding on retirement age. Many people don't have another source of income once they stop working, so Social Security benefits are a necessity. There's also the consideration of cumulative total benefits. If you delay payments, it can take a few years to equal the total cumulative income you would have received by starting earlier.
2. Maximize your indexed monthly earnings
The other major determinant of your Social Security benefits is the amount that you pay into the system. The government takes the average indexed monthly earnings during your 35 highest-earning years and calculates a primary insurance amount based on that data. Obviously, most people can't simply choose to make more money at their current job. However, understanding the methodology behind indexed earnings can inform decisions around retirement timing.
This is especially relevant for people who may not have paid into the system for 35 years. That could include stay-at-home parents, people who sacrificed income for a time to start a business, people who lived abroad and qualified for tax exemptions, anyone who lost employment for an extended period, or adults who took a sabbatical for educational degrees. You might be in a position to increase your monthly Social Security benefit by delaying retirement so that you eliminate a year or two with zero indexed earnings. Even a shift to semi-retirement with part-time work would be helpful.
This could also apply to someone whose earning power increased substantially late in their career, even if they've already paid into the Social Security system for 35 years. Replacing a lower-earning year in favor of another with higher indexed earnings would result in a larger monthly benefit.
3. Review eligibility for additional benefits
Social Security benefits extend beyond basic retirement income. Many people with deceased partners or caretakers are entitled to survivorship benefits. Some unmarried recipients can qualify for higher payments based on the wages of a former spouse. There are numerous programs for people with disabilities or financial hardships.
It's a good idea to consult the Benefits Eligibility Screening Tool (BEST) to figure out if there are any Social Security programs that could increase your retirement cash flows. Make sure that you aren't leaving any money on the table that could be valuable in retirement.
