Applying for Social Security isn't difficult. You just gather the appropriate documents, fill out the application form, and wait for the Social Security Administration to start sending you checks. But maximizing your benefits is a much bigger challenge.
It requires a clear understanding of the factors that influence your checks. Fortunately, there aren't too many of them to worry about. Here's a three-step game plan to maximize your Social Security benefits.
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1. Work at least 35 years
The government bases your Social Security benefit on your average monthly earnings, adjusted for inflation, in your 35 highest-earning years. Working longer than this can have its advantages. Most people earn more later in their careers than they did starting out. Once they pass the 35-year mark, their earlier, lower-earning years drop out of their benefit calculation and are replaced with more recent, higher-earning years. This leads to larger checks.
You might think that the Social Security Administration just looks at your total income history if you've worked fewer than 35 years, but that's not entirely accurate. In addition to your working years, it also adds one or more zero-income years to your benefit calculation. This permanently reduces the size of your checks.
That's why I intend to remain in the workforce for at least 35 years before applying for Social Security. But I acknowledge that isn't for everyone. Some people have to retire early due to health issues or family caretaking requirements. Others choose to take time off during their careers for other pursuits. If you're one of these folks, don't panic. Zero-income years do hurt your benefits, but there are ways to make up for this.
2. Understand how your claiming age affects your checks
The Social Security Administration uses your earnings history to calculate your primary insurance amount (PIA). This is the benefit you're entitled to if you apply for Social Security at your full retirement age (FRA). That's 66 to 67 for today's workers, depending on birth year.
You don't have to wait until then to apply for benefits, though. You can apply as early as 62, but claiming under your FRA reduces your checks by up to 30%. Every month you wait to claim permanently increases your Social Security benefit until you qualify for your maximum checks at 70. These are up to 132% of your PIA.
The right claiming age depends on your life expectancy and your financial situation. Those who don't expect to live past their 70s and those who would have difficulty covering their bills without Social Security are often better off claiming early. But if neither of these apply to you, you could get a larger lifetime benefit by delaying Social Security until your FRA or later.
Right now, I plan to wait to claim Social Security until 70 because I believe it'll give me the most money overall. But this may not be the right decision for you.
3. Talk it over with your spouse
Married couples have the best chance of maximizing their household Social Security benefits if they sit down and talk with each other about a claiming strategy. If both people worked long enough to qualify for retirement benefits, then they'll each be eligible for spousal benefits on the others' work record as well. But you can claim spousal benefits only if your partner is already receiving checks. Even then, you get a spousal benefit only if it's worth more than your own retirement benefit.
For couples with similar earnings histories, it often makes sense for both to delay Social Security as long as they can, assuming their health and finances permit this. In situations where one spouse has drastically outearned the other, sometimes it helps for the lower earner to apply for benefits right at 62. Their checks can give the couple some financial support while the higher earner delays. Then, when the higher earner applies, the Social Security Administration will switch the lower earner to a spousal benefit if it's worth more than what they're already getting.
Having a claiming strategy in place can help you figure out how much you and your partner need to save on your own for retirement. But remember, you might need to adapt over time. Your retirement timeline might change, and Social Security could change as well. If these things occur, you'll need to update your Social Security strategy accordingly.
