Want to squeeze the highest income possible from Social Security? That's a rhetorical question. Of course you want more from the retirement benefit that lasts the rest of your life. Here are six strategies to help you get all the pennies you deserve from Social Security.
1. Verify your earnings history
Social Security calculates your benefit from your earnings history. If that earnings history is incomplete, your benefit will be artificially low.
You can access your earnings record by creating an account at my Social Security. You can also ask the Social Security Administration to mail you a copy of your earnings record with Form SSA-7004.
If income is missing from your file, gather up tax returns, pay stubs, or any other documentation you have, and contact your local Social Security office.
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2. Report side hustle income
Your side hustle income is taxable. Failing to report that income can get you in trouble with the IRS. Plus, unreported income won't show up on your earnings record, which ultimately can lower your Social Security benefit.
You'll likely report your self-employment income on your tax returns, using IRS Form 1040, Schedule C and Schedule SE. You'll use Schedule SE to calculate your self-employment tax, which covers your contribution to Social Security and Medicare.
3. Work 35 years or more
The Social Security formula averages your historic earnings to figure your benefit. That average considers the 35 years you made the most money. If you've worked fewer than 35 years, the average calculation uses zeros for the missing years.
For the sake of example, say you've worked 30 years and earned $50,000 in all those years. Assuming zero income for five years, your 35-year average is $42,860. The average goes up for each additional year you work, reaching the full $50,000 once you've worked 35 years.
The point is, work 35 years if you can. That way, you shouldn't have zero-income years diluting your earnings and, in turn, your benefit.
4. Wait until FRA to collect
Your full retirement age (FRA) is the age you qualify for your entire, unreduced Social Security benefit. If you start collecting Social Security before FRA, your benefit will be lower. Social Security applies a percentage reduction for each month you expedite your benefit relative to FRA. That total reduction can be as high as 30%.
5. Plan your earnings
If you are working and collecting Social Security before FRA, you are subject to income limits. Exceed those limits and your benefits are reduced.
You might also see a Medicare-related reduction to your Social Security with a jump in your taxable income. Higher taxable income (which includes investment income) can trigger a new or larger Medicare premium surcharge against your Social Security. This can happen if you did a Roth conversion or realized a large investment gain.
To make things extra confusing, the surcharge will hit your benefit two years after the income was earned.
In the case of a Roth conversion, you may accept the temporary blow to your Social Security as a trade-off for moving your money into a tax-free account. But in other scenarios, planning the timing of your income may help you lower or avoid an extra surcharge.
6. Pay your debts
Social Security will garnish your benefits for certain types of unpaid debts. Those debts include unpaid federal taxes, child support, alimony, student loans owed to the Department of Education, and court-ordered victims' restitution.
To appeal a garnishment, you must take it up it with the IRS directly, not Social Security. You'd likely need an attorney to help you, so it's best to avoid these situations if you can.
Get all you can from Social Security
Even in the best circumstances, Social Security doesn't pay out a lot. For the average worker, the federal retirement benefit replaces about 40% of working income. You want to stay close to that benchmark if you can.
Correcting missing or inaccurate earnings, waiting until FRA to collect, smoothing out income spikes, and paying your debts on time can prevent you from leaving Social Security money on the table.
