Millions of Americans depend on their Social Security benefits to help them meet their financial obligations. For that reason it makes a great deal of sense for recipients to pursue any strategy that helps to ensure their monthly checks are as large as possible.
To help you get the most out of your Social Security benefits we asked a team of Motley Fool contributors to share a strategy that can help our readers to boost their monthly benefit check. Read below to see what they had to say.
Dan Caplinger: One area where the laws concerning Social Security are in flux concerns married couple and maximizing their benefits. In the past, a strategy known as file and suspend allowed couples to have a higher-earning spouse file for retirement benefits but immediately suspend them. That allowed the lower-earning spouse to claim spousal benefits, but it also permitted the higher-earning spouse to keep earning delayed retirement credits that would lead to a bigger monthly payment down the road.
Now that April is over, the file and suspend strategy isn't available any longer, because suspending your benefits will also cut off your spouse from claiming spousal benefits on your record. As a result, more couples will have to consider starting to receive benefits at an earlier age, especially in one-earner couples in which the non-earning spouse's spousal benefits won't be available unless the earning spouse files for retirement benefits. That level of coordination gets complicated quickly, and it's even more complex when you take into account the effect of your initial claiming decision on the survivor benefits that a surviving spouse would be able to claim on your record after your death. All in all, even if you think you have Social Security figured out, you need to look at recent law changes to make sure your plans for retirement will still work.
Brian Feroldi: If maximizing your Social Security payout is your goal, then it's critical to have a firm grasp on the formula that is used to tabulate your benefits.
Social Security benefits are calculated based on your lifetime earnings history, but the agency does slightly tweak your data when they are figuring out how much you are owed.
First, the SSA indexes your wages to bring them up to near-current levels. This helps to ensure that a worker's benefits account for the standard of living increase that occurred during his or her career.
Next, the workers highest 35 years of earnings are averaged together. From there the SSA applies a formula to the total and out pops the "primary insurance amount," which is the benefit that a worker would receive if they choose to start receiving checks at their full retirement age.
With this formula in mind one smart way to ensure that your benefits are as high as possible is to make sure that you have at least 35 working years on record. If your working history is less than 35 years then the agency will use a $0 in their calculation for each year that you are short, which can put a lot of downward pressure on your average and reduce your benefits.
If you run this calculation and find that you are a year or two short then staying in the work force until you reach the 35 year target will certainly give your benefit check a big boost.
Selena Maranjian: One guaranteed way to boost your Social Security benefits is to delay starting to collect them. You can start receiving the payments as early as age 62, but they'll be smaller than they would be if you started them at your "full" retirement age -- the one at which you'll receive your full benefits. You can also opt to start collecting as late as age 70, and for every year beyond your full retirement age that you delay, your benefits will increase in value by about 8% -- up to age 70. So delay from 67 to 70 and you can make your checks fully 24% bigger. That's pretty powerful. If you were expecting to collect $2,000 per month ($24,000 per year), you can instead receive $2,480 per month (or nearly $30,000 annually).
It's not a slam-dunk move, though. As the Social Security Administration has explained: "If you live to the average life expectancy for someone your age, you will receive about the same amount in lifetime benefits no matter whether you choose to start receiving benefits at age 62, full retirement age, age 70 or any age in between." Remember, after all, that in the example above, you might end up with $2,480 monthly checks, but you would have given up three years' worth of $2,000 checks in order to achieve that -- that's 36 times $2,000, or $72,000.
If you can afford to delay starting to collect, though, it can be well worth it to do so. If you expect to live a long time, for instance, you'll come out ahead. Not everyone can afford to wait, though, so know that starting on time -- or even early -- isn't as financially damaging as it might seem.