Seniors are usually the ones who apply for Social Security, but they’re not the only people who should be thinking about it. If you plan to rely on Social Security in retirement, you need to understand how the decisions you make today will affect your retirement later.
Here are three things you can do right now to maximize your Social Security benefit, even if you’re decades away from applying.
1. Increase your income today
Anything you can do today to increase your income will likely increase your Social Security checks in retirement as well. The government bases your checks on the amount you’ve paid in Social Security taxes over the years. This often, but not always, corresponds to your income.
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High earners pay no social security taxes on their total income. In 2022, the government will only tax the first $147,000 you earn. Anything above that is great for saving or spending today, but it won’t help your social security checks. However, most people will not encounter this problem.
Locking in a raise, finding a better-paying job elsewhere, or working overtime can all ease your Social Security checks. You could also start a side business. Think about what interests you most and how you could monetize it.
2. Work longer
Working longer hours can often increase your Social Security benefits, especially if your income increases over time. The benefit formula considers the money you paid Social Security taxes on during your 35 highest-earning years, adjusted for inflation. You don’t have to work that long hours to file for Social Security, but it can make a big difference in the size of your checks.
If you have been employed for less than 35 years, years without income are included in the calculation. Even one of these can reduce your monthly benefit by several dollars. And over decades, this can add up to hundreds or even thousands of dollars.
When you work past 35 years, benefit amounts often increase as people’s income tends to increase as their career progresses. Once you’re past age 35, some of your earlier, lower-income years drop out of your benefit calculation and are replaced by more recent, higher-income years, leading to larger reviews.
3. Delay services when it makes sense for you
The age at which you first claim benefits has a significant impact on the size of your checks. If you want to get the full benefit you earned as a result of your work, you will have to wait to claim your full retirement age (FRA). Depending on the year of birth, this is between 66 and 67.
Claim benefits before your FRA shrinks your checks. Those who sign up immediately at 62 will receive 25% fewer checks if their FRA is 66, or 30% fewer checks if their FRA is 67. To put this in perspective, if you qualify for the average monthly check of $1,669 at your FRA of 67, you would only get $1,169 per month if you signed up at 62.
Your checks will go up slightly for each month you defer benefits until you reach your maximum benefit at 70. This is 24% more than your performance on your FRA if your FRA is 67, or 32% more if your FRA is 66. Postponing beyond that age won’t keep increasing your checks, so you should definitely sign up by 70 at the latest.
Some people choose to enroll earlier, which can be wise if they don’t expect to live long. Individuals with terminal illnesses or with a personal or family medical history may prefer to enroll at age 62 and claim benefits for as many years as possible before they die.
Those who don’t worry about an early death can often get a higher lifetime Social Security benefit by deferring their application. Although you will receive checks for fewer years, all will be larger.
But life expectancy isn’t the only factor to consider when choosing a Social Security eligibility age. You also need to consider your financial situation and decide if you can afford a delay. If you can’t defer claiming for as long as you’d like, you can compromise and defer a few months or a year rather than sign up once you’re eligible.
If you want to get the most out of Social Security, the tips above are your best option. Take a moment to think about how you could increase your income and decide when you want to claim Social Security as well. Build this into your retirement plan and review your entitlement strategy annually to make sure it’s still right for you.
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