Maximizing your Social Security benefit from the get-go is a smart move to protect the longevity of your savings. After all, the more you collect from the feds, the less you have to pull from your retirement portfolio. Plus, starting from a higher base makes those percentage-based cost-of-living adjustments worth more to you over time.
Here are two income-boosting strategies to consider. Either can raise the average worker's monthly benefit by more than $800.
1. Delay your Social Security application
The first thing to know is that you are eligible for your full Social Security benefit when you reach full retirement age (FRA), an age assigned to you based on your birth year. Filing for Social Security before FRA reduces your monthly benefit and filing later than FRA increases your monthly benefit.
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Here's how the reduction for filing early works. A reduction is applied to your full benefit based on how many months your filing precedes your FRA. If you file no more than 36 months prior to reaching FRA, your benefit is reduced by five-ninths of 1% for each month you're early. For any months in excess of 36, the reduction is five-twelfths of 1% monthly.
Let's put some numbers to that formula. Say you're 50 today and your FRA is 67. You plan to claim at 62 -- which is 60 months prior to your FRA. Your benefit reduction for the first 36 months is 20%, calculated as five-ninths of 1% multiplied by 36. You'd then add another 10% to that reduction for the remaining months, calculated as five-twelfths of 1% multiplied by 24. That's a total benefit cut of 30%.
You can avoid the 30% cut simply by waiting until your FRA to claim Social Security benefits. But if you're willing to delay your claim past your FRA, you qualify for delayed retirement credits -- which can also be significant. For every month you postpone your claim beyond FRA, your benefit is increased by two-thirds of 1%. Those credits stop accumulating at age 70. So, if you're 50 today with an FRA of 67, you could delay your claim by up to 36 months. That earns you a benefit increase of 24%.
Now, let's translate those percentages into real numbers. The table below shows estimated benefits in today's dollars at different claiming ages for a beneficiary who is 50 today. The benefits are calculated by Social Security's quick calculator.
|
Current Salary |
Estimated Benefit at 62 |
Estimated Benefit at FRA |
Estimated Benefit at 70 |
Difference Between Benefits at Age 62 vs. 70 |
|---|---|---|---|---|
|
$40,000 |
$1,043 |
$1,537 |
$1,940 |
$897 |
|
$45,000 |
$1,123 |
$1,657 |
$2,093 |
$970 |
|
$50,000 |
$1,202 |
$1,777 |
$2,247 |
$1,045 |
|
$55,000 |
$1,282 |
$1,897 |
$2,400 |
$1,118 |
|
$60,000 |
$1,361 |
$2,016 |
$2,553 |
$1,192 |
Data sources: SSA.gov, author calculations.
The righthand column shows the upside of delaying your Social Security claim from age 62 to age 70. If you're earning $50,000 today, the eight-year postponement could increase your monthly income by more than $1,000.
2. Increase your income
You may not love the idea of putting off retirement until your 70th birthday. That's understandable. Of course, you have the option to delay Social Security for a year or two in return for a smaller benefit increase. But you could also raise your benefit by increasing your income today.
Your Social Security benefit at FRA is based on your average inflation-adjusted monthly income during your highest-paid 35 years of working. If you are 50 today, you have more than a decade to increase that average by adding higher-income years to your work history. Each year of higher income earned going forward will replace a year of lower income in that 35-year calculation.
The potential increase to your benefit through higher income is not as fruitful as simply waiting -- but why not find a middle ground by combining both strategies? For example, say you pick up a side job to increase your current income from $50,000 to $60,000 annually. That raises your benefit at 62 by an estimated $159 monthly. If you also waited until FRA to claim your benefit, the cumulative monthly increase goes up to $814. Plus, you'd then have the option to keep your secondary income after you leave your full-time role, which adds even more financial flexibility.
Be strategic about Social Security
Only you can decide when to file for Social Security. Delaying your claim benefits you financially, but not everyone wants to work until age 70. In that case, find opportunities to increase your wages now while you're still working. That'll help increase your Social Security benefit and, hopefully, give you the flexibility you need to retire as soon as it feels right.
