Maximizing your monthly Social Security check can be a really smart financial move. You’ll have more income as a retiree. And since these benefits last for life, a bigger check could come in handy later in retirement if your savings start to run dry.
Following these three steps should help increase the size of your monthly Social Security payout.
1. Work for at least 35 years
Social Security benefits are based on your average wage in the 35 years your inflation-adjusted earnings are highest. If you want a bigger retirement check, make sure you work at least 35 years. If you don’t stay on the job at least that long, every year you miss will result in a year of $0 wages being factored in when benefits are calculated.
And if you work exactly 35 years, some of those could be years when you didn’t earn very much. You might have earned very little at the start of your career before you moved up the corporate later. Or you might have had a bad year if you were unemployed for part of the time.
If you want a richer payout, consider working more than 35 years if you’re earning more now than you did earlier in your life. The more higher-earning years you can add to your career history, the more lower-earning ones that won’t be included when your average wage is calculated. By eliminating bad years from your benefits calculation and increasing your average wage, you make your checks bigger.
2. Put off claiming your benefits
If you claim Social Security benefits at your designated full retirement age (FRA), you will receive the standard benefit calculated based on average wages. Every retiree has an FRA, which is based on year of birth.
If you don’t claim benefits at your exact FRA, though, your standard benefit could be increased or decreased depending on when you get your first check.
You can start Social Security as early as age 62, but you will get an early filing penalty for every month you start before your FRA. The impact of these penalties can be substantial. If your FRA is 67 and you claim at 62, for example, that would result in a whopping 30% benefit reduction.
If you want a richer payout, you should obviously wait until at least your FRA to avoid early filing penalties. But you can continue to increase your benefits by waiting to claim them until age 70 because delayed retirement credits are available until then. These raise your monthly payment for each month you delay after FRA, and ultimately can bump up your benefit by 8% each year you wait, giving you a lot more money to work with in retirement.
3. Minimize the taxes on your Social Security checks
Lastly, you should consider where you live if you want to keep the most Social Security money possible. A minority of states tax your retirement checks, so if you’re thinking about retiring in one of them, you might want to reconsider.
Federal taxes could also be an issue no matter where you live. These can kick in once your income reaches a certain threshold. Roth IRA and Roth 401(k) distributions don’t count as income for purposes of determining if Social Security benefits are taxed, so you could use these accounts to save for your retirement years.
By following these three tips, you can hopefully maximize your monthly Social Security checks. The program’s benefits alone won’t make you rich, but a bigger payout can make a difference in how financially secure you are in retirement.
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