Image source: SSA Office of the Inspector General.
This article was updated on June 9, 2016.
Social Security provides tens of millions of Americans with the income they rely on in retirement, and there's always room for current and future recipients to squeeze more from their benefits. Especially with recipients getting no cost-of-living adjustment for 2016, it has never been more important to maximize whatever benefits you're eligible to receive. Let's look at five ways you can work to get more from your Social Security in 2016 and beyond.
1. Work as long as Social Security expects you to work.
In calculating your benefits, the Social Security Administration looks at your earnings over a 35-year career. If you work longer than that, then the SSA picks the highest-earning 35 years, indexing your pay to reflect inflation throughout your working years. If you work fewer than 35 years, however, the SSA simply puts in zeros to come up with average earnings, reducing your benefits. Those who have considered early retirement might want to think twice once they realize the impact such a move can have on their monthly Social Security checks.
2. Wait past minimum retirement age before claiming benefits.
You can claim Social Security benefits as early as age 62, but you'll receive larger monthly payments if you wait. The chart below shows the impact that taking benefits at different ages can have on the size of your check.
Data source: SSA.
Of course, putting off your benefits means receiving fewer monthly checks over the course of your lifetime, so there's a trade-off involved. Nevertheless, many retirees have the flexibility to adjust their overall finances to take advantage of higher benefits later, either by working longer or by using other assets for their spending early in their retirement.
3. Make sure your family gets everything they're entitled to receive.
Many people don't realize that family members can also claim benefits based on your work history. Spousal benefits are available for a spouse who has reached age 62 or is caring for children who are under age 16. You can also receive spousal benefits even if you're divorced, as long as you were married for 10 years or more and haven't remarried in the interim.
Children can also receive benefits under certain circumstances. To qualify, they must be under age 18 or still be in high school. Older children can receive benefits if they are disabled.
Total family benefits are subject to maximums of between 150% and 180% of your retirement benefit. In addition, a worker must generally file for benefits before a spouse or other family members can claim family benefits on that worker's earnings record. Nevertheless, in many situations, families don't claim all the benefits they qualify for, so be sure to look at the potential for family members to claim Social Security benefits based on your work history.
4. Avoid work-related benefit reductions.
Social Security requires participants who haven't reached full retirement age to forfeit some of their benefits if they earn more than set threshold amounts. For 2016, those who won't reach age 66 during the year have to give up $1 in annual benefits for every $2 they earn above $15,720. If you turn 66 in 2016, the limits are higher, losing $1 for every $3 you earn above $41,880 prior to your 66th birthday. That's a big reason why many people who choose to keep working delay their Social Security despite technically being eligible to take benefits.
5. Keep your benefits free of income tax.
Many retirees don't realize that Social Security benefits are sometimes subject to income tax. Add up your taxable income from other sources and then add in half your Social Security benefits, and if the result is more than $25,000 for singles or $32,000 for couples, then you could end up paying income tax on a portion of your benefits. One fix is to use nontaxable income sources like Roth IRAs to supplement your Social Security income, but in the worst-case scenario, you might have to include as much as 85% of your benefit as taxable income.
Social Security is a critical source of income for retirees, so making the most of it is important. Following these five steps can help put you on a path toward having your Social Security benefits make a bigger difference in your financial life after you retire.
