Social Security could be the only source of income that you'll get in retirement that is guaranteed. But it may not be a big portion of your overall income.
For the average person it will make up about 40% of their working income, but the more you make the lower this percentage could be. Here are three strategies that will help boost this payment and help you make the most of this benefit.
Work at least 35 years
Working as many years as possible could get you a higher Social Security payment. That's because your benefit will be calculated using an average of your income from your highest 35 working years. So if you worked 36 years and your lowest two wages were $25,000 and $30,000, the year when you made $25,000 would not be included in your calculations. If you have fewer than 35 working years, the ones where you had no income would count as zeros. So if you worked 30 years, the income from those years will be added up and the five years that you didn't work will count as zeros when the average is calculated. Therefore, more years of zero work will drag your average down.
You can't go back in time and start working sooner. But if you've gotten to retirement age and don't have a full 35 years of work, you can consider working longer. If you planned on leaving work at age 62, working until 66 or 67 could make a significant impact on how much you receive. And even if you still have some zero income years, reducing the number of them could work in your favor.
Get pay increases annually
The higher wage you earn, the more you pay into the Social Security system. And this also gets you a bigger paycheck when you retire. If you earn the maximum wage base limit for 35 years, which increases over time but in 2021 was $142,800, you could qualify for the highest possible Social Security payment, which in 2021 is $3,895.
But even if you can't get this amount, earning more every year could still get you a higher Social Security payment. You can't always control how much you make but if you're eligible for or can request pay raises annually, this could increase your benefit payment. And even if you don't receive raises, earning extra income through a second job, gig work, or consulting will have the same impact on this payment. And anything extra that you make is added to your total income for the year and figures into your calculation.
Delay taking Social Security
When you reach your full retirement age (FRA) you're eligible for your standard Social Security benefit. But you can take it as early as age 62 or delay it as late as age 70. If you take it early you'll get a reduced payment for every year that you take it early. But if you delay it, you'll get a pay increase for every year that you wait.
There are certain circumstances like a short life expectancy that make taking Social Security early your best bet. But if you live a long life, you may benefit most from delaying it. And not only would this decision secure you the highest monthly benefit, but it could also potentially yield you the most lifetime income from the system.
For example, if your standard benefit at age 66 is $2,300, your reduced benefit at age 62 is $1,725 and your delayed benefit at age 70 is $3,036. If you live to the age of 75, you will get $269,100 in income if you take it at age 62; $248,400 at age 66; and $182,160 at age 70. If you live to the age of 80, you will get $372,600 in lifetime income if you take it at age 62; $386,400 at 66; and $364,432 at age 70. If however, you live to the age of 85, you will get $476,100 if you take your Social Security benefit at age 62; $524,400 at age 66; and $546,480 at age 70.
Social Security won't replace all of your income from working. But it could play huge a role in how comfortably you live in retirement. And doing what you can before you stop working could help reduce the stress of living on a fixed income.
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