It's almost impossible for most Americans to properly plan for retirement without considering Social Security. It's a social program that has been around for decades and has kept millions of Americans financially afloat during their retirement years.
Considering that Social Security plays such a significant role in many Americans' retirement finances, it's not surprising that people would aim to receive as much as possible. For the most part, the amount you receive in Social Security depends heavily on your career earnings. The more you earn, the more you pay in Social Security payroll taxes, and the higher your monthly benefit in retirement.
Although increasing your earnings is the clearest-cut way to increase your monthly benefit, two overlooked things can be done that can also boost your benefit amount. Let's take a look at them.
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It pays to be patient with Social Security
Monthly Social Security benefits revolve around your primary insurance amount (PIA), which is the base benefit you receive at your full retirement age (FRA).
For many people, the fact that you can delay your benefits past your FRA to receive a higher monthly amount isn't breaking news. However, many people may be unaware of just how much more they can receive by delaying benefits.
Each month you delay benefits past your FRA increases your monthly benefit by 2/3 of 1%, working out to 8% annually. This happens until you turn 70, making that realistically the latest age you should claim benefits.
To see how powerful delaying benefits can be, let's assume your PIA is $2,000 and FRA is 67. If you were to claim benefits at 62 (the earliest you can claim), your monthly benefit would be reduced by 30% to $1,400. However, if you delayed benefits until 70, it would be increased to $2,480. That's a 77% increase from the monthly amount by claiming at 62 and 24% more than your PIA.
If we assume the monthly benefits remain the same for 10 years -- which they likely won't because of the annual cost-of-living adjustment -- claiming at 70 could net you $10,800 more than claiming at 62 and $4,800 more than claiming at FRA.
Couples can lean on the higher-earning spouse
One of the best benefits of Social Security is that individuals can receive benefits based on their partner's work history, known as spousal benefits. With Social Security spousal benefits, someone is eligible to receive up to 50% of their spouse's PIA, assuming they claim benefits at their FRA.
Using spousal benefits can be especially useful for couples where one person earns significantly more than the other or where one person has a limited work history due to reasons such as raising children, health issues, caring for elderly relatives, or other relevant causes.
For example, let's imagine one spouse (Spouse A) is a doctor who has earned a significant amount throughout their career and has a PIA of $4,000, and the other spouse (Spouse B) worked more modest jobs and has a PIA of $1,000. Instead of claiming individual benefits and receiving $1,000, Spouse B could claim spousal benefits and receive $2,000.
The jump from $1,000 to $2,000 is a big deal, but it's worth noting that to receive the full 50% of your spouse's PIA, you must claim benefits at your FRA and not theirs. Claiming spousal benefits before your FRA will reduce the monthly amount just like it does with standard benefits, but the reduction amount is different.
Claiming spousal benefits before your FRA reduces them by 25/36 of 1% monthly, up to 36 months. Each additional month further reduces them by 5/12 of 1%. In either case, leaning on spousal benefits could noticeably increase the monthly benefit of a spouse in particular situations.
