How to Maximize your Social Security Benefit

Older women rowing on a boat in the middle of a lake

Even if you have a strong retirement plan and won’t have to rely on Social Security as a primary source of income, it’s money that you have earned and are entitled to. If you are still working and trying to decide the optimal age for you to retire, you should be aware of how the Social Security Administration is doing the math on your future benefit. Decisions you make now could still affect the amount you receive when you retire.

Here’s what you can do to maximize the dollar value of your future Social Security benefit.

Put in enough years: Your Social Security benefit is based on the 35 years in which you earned the most. If you had strong earnings for 25 years but took time off to raise children or to be a caregiver to a loved one, your 25 years of earnings will be averaged out over 35 years–reducing your Social Security benefit when you retire.

Have some big years: It helps to have some particularly good years in your record – perhaps when you received a significant bonus or incentive package. Those higher-income years will help boost your 35-year average. If you are in your last few years of a good career you may be at the peak of your earnings chart. Each year you continue to work at this salary level will slightly ratchet up your average, and therefore your future benefit. There’s a maximum to this math, however. As of 2019, earnings from work of up to $132,900 are used to calculate your average.

Delay taking benefits: Although you can start drawing your Social Security benefit at 62, doing so might be a bad idea unless you absolutely need the income and/or know that you have a limited time left to live.  Odd as it sounds, accepting your benefit at “full retirement age” isn’t necessarily the best long-term financial move – unless you really need the money and expect to live at least another decade. Each year you delay, up to age 70, your benefit increases by 8%. So, if your full retirement age is 66, you can compound up to four years of 8% increases and end up with a monthly benefit over 30% higher than it would have been at 66.

Granted, that strategy means missing out on four years of benefits at the lower rate. And it will take about a decade of benefits at the higher level to fully recoup the four years of lower benefits that you declined. So, if you don’t need Social Security to maintain your lifestyle during your late 60s, waiting until 70 to start taking your benefit can have a long-term value – assuming you live past 80. Another thing to consider, should you die before recouping these benefits, your surviving spouse will be able to claim the higher benefit.

Be aware of earnings limits. Up until you hit your full retirement age, the amount you receive from Social Security will be reduced if you earn more than the established limits. For example, if you hit your full retirement age in 2019, your Social Security benefits may be reduced if your earnings from work that year exceeded $46,920. (For every $3 in earnings above that limit, your benefit would be reduced by $1). However, the earnings limit only applies to the year that you hit your full retirement age (or earlier). This would not be a factor if you begin taking benefits the year after your FRA. From that year on, your Social Security might be subject to taxes, but the “earnings limit” provision will no longer apply to you.

Consider spousal benefits: If your spouse made the big income while you raised the kids, you can have your benefit based on up to 50% of his or her earnings record – even if you are no longer married.

Late-in-life children: If when you retire you still have dependent children, you can claim an additional Social Security benefit.

Know when your Social Security is taxable: Your Social Security benefit can be subject to income taxes if other income is above a certain threshold. For example, in 2019 if your taxable income exceeds $25,000 for an individual or $32,000 for a couple filing jointly, then up to 50% of your Social Security benefit might be considered taxable income. If your taxable income exceeds $34,000 or an individual or $44,000 for a couple, then up to 85% of your Social Security check could be counted as taxable income. This may be another reason to delay taking Social Security until age 70 if you are still earning a full-time salary in your late 60s.

Claim survivor benefits: If your spouse made significantly more money than you did, and is now deceased, you can inherit your spouse’s benefit in addition to your own.

Whether or not you will be relying on Social Security in retirement, you put money into it. Every year of your working life you paid 6.2 percent of your gross income in Social Security taxes – 12.4% if you were self-employed. Before you file for Social Security, be sure to discuss that with a financial advisor as part of your overall retirement plan. The decisions you make before you start claiming Social Security will affect the dollar amount of your Social Security benefit – for the rest of your life.