Author: Sean Williams | April 04, 2019
Social Security is a financial foundation for our nation’s retirees
Whether you realize it or not, there’s a really good likelihood that you’ll be reliant on Social Security income during retirement to make ends meet.
According to an April 2018 Gallup survey of nonretirees, a combined 84% of respondents expect their Social Security income to represent either a major (30%) or minor (54%) portion of their monthly income during retirement. Considering that 62% of current retirees lean on the program for at least half of their income, we can pretty safely surmise that America’s most important social program is the financial foundation that supports our retired workforce.
Given its likely importance to the financial well-being of retirees during their golden years, it only makes sense for future beneficiaries to do everything in their power to boost their eventual payout. Here are 12 ways that could ensure your benefit grows in size.
1. Delay taking benefits
Arguably the most well-known way to increase your Social Security benefit, and the method that can have the largest impact on your monthly and lifetime benefit, is simply delaying your claim.
Although retired worker benefits can begin at age 62, the Social Security Administration (SSA) incents folks to wait longer. For each year you hold off on taking your payout, your benefit grows by approximately 8%, up until age 70. All things being equal, such as work history, earnings history, and birth year, a person claiming at age 70 could be paid as much as 76% more per month from Social Security than someone claiming as early as possible at age 62.
Keep in mind that waiting isn’t for everyone. But if you’re in good health or have little saved for retirement, waiting can make a lot of sense.
2. Learn a unique job skill or work in a high-demand industry
When determining your Social Security benefit at full retirement age, the SSA takes four factors into account. One, which was just discussed, is your claiming age. Second is your birth year, which is what determines your full retirement age. The other two factors are your work history and earnings history, with your 35 highest-earning, inflation-adjusted years taken into account. In other words, the more you earn (up to the earnings cap), the more you’ll be paid by Social Security.
One of the best ways to boost your long-term earning capacity is by learning a unique job skill or working in a high-demand industry. Jobs that require specialization may lead to a higher annual wage or salary. For example, veterinarians are paid a median of $90,420 per year, according to the Bureau of Labor Statistics, and demand for veterinarians is expected to grow by 19% between 2016 and 2026, which is much faster than most other industries. Learning a unique skill or targeting a high-demand industry can boost your earning power for years or decades, thereby lifting your eventual Social Security benefit.
3. Work at least 35 years, but preferably longer
In addition to simply earning as much as you can each year, you’ll want to ensure that you work for 35 years, if not longer. As noted, the SSA takes your 35 highest-earning, inflation-adjusted years into account when determining your full retirement benefit. For each year less of 35 worked, a big fat goose egg ($0) gets averaged in, which can severely drag down your future Social Security payout.
Also, take this nugget of wisdom into consideration: the longer you work, the more skills and work experience you’ll accumulate. Over time, these skills and experience should merit a higher wage or salary. This means that if you work into your late 50s or 60s, you might replace some of your lower-earning (inflation-adjusted) years from when you first entered the workforce and had few skills and little experience.
4. Consider a Social Security do-over
Believe it or not, Social Security has a do-over clause. Known officially as Form SSA-521 (Request for Withdrawal of Application), this Social Security mulligan allows recent applicants the opportunity to undo a benefit claim, even if they’ve begun receiving payments.
If you file Form SSA-521 with the SSA, and the SSA approves your request, it will be as if you never filed for benefits in the first place. In essence, your benefits will once again continue growing at roughly 8% per year, until age 70, or until you decide to begin taking your benefit for good.
The catch? First off, you only have 12 months from when you first begin receiving benefits to file Form SSA-521. And second, whatever benefits you have received from Social Security will need to be repaid in full to undo your claim.
Although this mulligan isn’t taken advantage of by many Social Security recipients, it can prove valuable to folks who were forced to take benefits early because they’ve struggled to find work, then land a well-paying job within a year of first receiving benefits.
5. Strategize with your partner
Understand that claiming a Social Security benefit isn’t always a personal decision. If you’re married, you’ll want to strategize with your partner in order to boost household income.
As an example, if there’s a pretty substantial gap in lifetime earnings between you and your spouse, it may make sense to allow the higher-earning spouse’s benefit to grow over time, while having the lower-earning spouse take his or her benefit early, in order to generate income for the household. Waiting will have a larger aggregate impact on household income for the higher-earning spouse.
Furthermore, if by some instance the higher-earning spouse passes away first, but he or she waits until at least their full retirement age to begin claiming benefits, the lower-earning surviving spouse will have the opportunity to maximize their survivor benefit, assuming it’s greater than their retired worker benefit.
6. Consider claiming spousal benefits, if eligible
Although not everyone is eligible for spousal benefits, thanks to new rules that were signed into law in November 2015, folks born before on or before Jan. 1, 1954 that are still married may be able to file a restricted application that allows them to choose to receive a spousal benefit. Of course, you can be sure there are a lot of catches.
First, as noted, you’ll need to be born on or before Jan. 1, 1954. Second, you can’t begin taking spousal benefits until you’ve hit your full retirement age, which for people born between 1943 and 1954 is 66 years of age. And third, you can’t claim spousal benefits until your partner has filed for their own retired worker benefit (these are known as “deemed filing rules”). Spousal benefits pay up to 50% of what your significant other would receive at their full retirement age.
7. Consider your children as an added source of income
In some instances, minor dependent children, or disabled adult children, can qualify for benefits, which means a boost to household income.
According to the SSA, biological, adopted, and even stepchildren, can be eligible for benefits if certain criteria are met. A child must be:
- Younger than age 18, or up to age 19 if he or she is a full-time high school student
- 18 years old or older and disabled (as long as the disability began before the age of 22)
- A dependent of a parent who is disabled or retired and eligible for Social Security benefits
Subject to family limits, which caps payouts at 150% to 180% of the parent’s full benefit amount, minor dependent children and disabled adult children may be eligible for up to 50% of the parent’s full retirement or disability insurance benefit.
8. Stay married a bit longer
Another interesting way you may be able to boost your Social Security benefit is by staying married to your spouse a little bit longer.
When tying the knot, a fairytale ending is expected. But statistics from the National Survey of Family Growth show that about 3 in 10 marriages won’t last 10 years. But here’s the thing: Social Security’s rules allow a divorced spouse the opportunity to draw benefits on their ex-spouse’s earnings record (even if your ex-spouse has remarried) as long as the marriage lasted 10 years and certain criteria are met. Those criteria?
- You’re unmarried
- You’re age 62 or older
- Your ex-spouse is entitled to a Social Security retirement or disability benefit
- And (this is a big “and”) the amount you’d receive based on your ex-spouse’s earnings history is more than you’d receive based on your own earnings history.
Should these criteria be met, a divorced spouse might be able to boost their benefit.
9. Lean on a Roth IRA to avoid the federal taxation of benefits
I hate to break the news, but the federal government can tax a portion of your Social Security benefits if you earn too much. If your modified adjusted gross income (MAGI), plus one-half of your benefits, exceeds $25,000 as a single taxpayer, or $32,000 as a couple filing jointly, up to half of your benefits can be taxed at the federal level. Should your MAGI plus one-half of benefits exceed $34,000 as a single filer or $44,000 as a couple, up to 85% of your benefits can be taxed by Uncle Sam. According to The Senior Citizens League, 51% of senior households are currently paying tax on some portion of their benefits.
The solution is for folks to take advantage of back-end-loaded tax-advantaged retirement plans.
For example, a Roth IRA allows an individual to contribute up to $6,000 in 2019, unless they’re aged 50 and up. If so, the catch-up provision allows them to increase their contribution by $1,000 to up to $7,000 in 2019. Money that’s put to work in a Roth IRA has no upfront tax break, but it can be withdrawn during your retirement years without impacting your MAGI. Put another way, your Roth IRA withdrawals won’t count towards your income, which may help keep you below the federal income thresholds that qualify your Social Security benefits for taxation.
10. Stay away from states that tax retirement benefits
Making matters worse, 13 states also tax Social Security benefits, so you have to be mindful of where you call home during retirement.
On the bright side, three-quarters of all states won’t touch a cent of your benefits. But if you live in any of the following states -- Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, Rhode Island, Utah, Vermont, or West Virginia -- you’ll have some homework to do.
On one hand, some taxing states have very generous income exemption limits. Missouri, Rhode Island, Kansas, and Connecticut, allow single filers to earn up to $85,000, $80,000, $75,000, and $75,000 in respective adjusted gross income before any sort of taxation on Social Security benefits would kick in. That means only high-income individuals or couples would be exposed to double taxation in these states.
Meanwhile, states like North Dakota, Vermont, and West Virginia, mirror the federal tax schedule for Social Security benefits. They’re arguably among the least-friendly to retirees, and avoiding them can help ensure a larger payout.
11. Check your earnings history with the SSA
When was the last time you checked your earnings history with the SSA and compared it to your W-2s and tax filings? My bet is that it’s been a while, and that’s a dangerous game to play when your Social Security benefits are on the line.
The SSA is a highly efficient agency that returns more than 99% of each dollar collected to eligible beneficiaries. But it’s also capable of making mistakes, as are all human beings. As such, you’ll want to log into your online Social Security account once a year, or check your mailed statement, to confirm that the agency has correctly recorded your earned income. If it hasn’t, you’ll want to report the error to your nearest Social Security office. Some corrections can be made over the phone, but others may require you to head down to your local office to correct an earnings entry mistake in person.
Errors are a lot easier to fix prior to a benefit claim than after, so keep a close eye on your earnings history with the SSA.
12. Cross your fingers for a healthy COLA
Finally, even though it’s something you (and all other Americans) only have very small fractional control over with your spending habits, cross your fingers and hope for a healthy annual cost-of-living adjustment, or COLA.
COLA is nothing more than the “raise” that Social Security beneficiaries get each year that’s representative of the inflation they’ve faced. The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is the financial tether that determines whether beneficiaries receive a raise or not. If the average reading of the CPI-W during the third quarter (July through September) in the current year is higher than the average third-quarter CPI-W reading from a year ago, then beneficiaries receive a raise commensurate with the percentage increase, rounded to the near tenth of a percent.
In theory, beneficiaries want the biggest COLA possible. But the downside is that a big COLA also means that the price they’re paying for goods and services is climbing quickly too.
Make sure you focus on the appropriate timeline
As you can see, there are a lot ways your Social Security benefit can receive a lift. But one thing that hasn’t been mentioned thus far, yet is nevertheless incredibly important, is that you focus on your long-term take-home potential from Social Security.
Instead of becoming enamored with maximizing your monthly payout, examine the important factors, such as your health, marital status, and financial needs, to determine what claiming age will net you the highest possible lifetime payout from the program. For instance, if you’re not in the best of health and may not make it to the average U.S. life expectancy of a little over 78 years, delaying your benefits until age 70 to max-out your monthly benefit won’t make much sense.
In other words, boosting your Social Security benefit might mean increasing your monthly payout, but it always means focusing on the path that generates the highest aggregate lifetime payout from the program, whether that be an early, late, or middle-of-the-road claim.
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