If you’re still worried about Social Security disappearing before you get your cut, you can relax — a little. The program isn’t going to end anytime soon, but its rapidly depleting trust funds cast some doubt on its ability to continue paying out benefits at the current rate. That makes it all the more important to try to maximize your benefits.
There’s one simple way to guarantee larger checks in retirement. And you can start right now, even if you’re nowhere near ready to sign up for benefits.
How you can boost your Social Security benefits starting now
Your income today is the largest factor in determining your future Social Security checks. By increasing your earnings today, you can guarantee bigger checks in retirement.
For those of you who don’t know how the government calculates your benefits, here’s a quick primer. The Social Security Administration keeps a record of how much money you’ve paid Social Security taxes on throughout your working life. When you’re ready to start claiming, it picks out your 35 highest-earning years, with adjustments made for inflation.
It adds up your income during these 35 years (or less, if you didn’t work for that long) and divides this by 420 — the number of months in 35 years — to get your average indexed monthly earnings (AIME). Then, it plugs your AIME into the current benefit formula to get your scheduled benefit amount at your full retirement age (FRA).
For example, if you earned $50,000 per year every year for 35 years, adjusted for inflation, your AIME would be $4,167. But if one year, you earned $55,000, that, combined with your 34 years of $50,000 earnings, would net you an AIME of $4,179.
Anything you can do to raise your AIME will secure you larger checks later on. There are several ways you could go about doing this, including:
Pursuing a promotion
Starting a side hustle
Switching employers or fields
Basically, anything that increases your income today will also help increase your income in retirement — as long as you’re paying Social Security taxes on that money. You only pay these taxes on the first $142,800 you earn in 2021. Those who are lucky enough to earn more than this won’t get any extra boost to their Social Security benefits, but they’ll still be able to enjoy that sizable income today.
Other ways to boost your Social Security benefits
It’s easy to understand how boosting your income can help increase your Social Security checks, but actually making it happen is another story. If it’s not possible for you right now, that’s okay. There are still other things you can do to increase your benefits.
First, make sure you work at least 35 years, and longer if you can. This will ensure you don’t have any zero-income years factored into your benefit calculation. Working longer than 35 years won’t increase your benefits in and of itself. But it often works out that way because people tend to earn more money later on in their careers. These higher-earning years begin to replace their lower-earning years in their benefit calculation, resulting in a larger AIME.
Choosing the right starting age can also help you maximize your benefits. You can sign up as early as 62, but you must wait until your full retirement age — 66 or 67 for today’s workers — to get the full benefit you qualify for. Beginning early could reduce your benefit up to 25% if your FRA is 66 or 30% if your FRA is 67.
Delaying benefits is another option. Every month you do so increases your checks until you reach your maximum benefit at 70. That’s 124% of your scheduled benefit per check if your FRA is 67, or 132% if your FRA is 66.
The right time to start Social Security depends on your health and financial circumstances. Those who don’t believe they’ll live long are usually better off starting early. But if you think you’ll make it to your 80s or beyond and you can afford to delay benefits, it’s usually better to do so. You’ll receive fewer checks, but the ones you get will be larger, resulting in a larger lifetime benefit.
If you’re not sure how much you’ll get from Social Security or how your decisions will affect your benefits, create a my Social Security account and use the calculator there to see how various starting ages and income changes could affect your monthly checks. This should give you some idea of which changes will result in the most substantial increases for you.
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