One of the most important things to know about Social Security is that it’s within your power to increase the size of the benefits you’ll eventually collect from the program. It’s well worth learning how you might do so, because just settling for whatever you get is likely to leave you short-changed. The average monthly retirement benefit was recently just $1,828 — or about $22,000 on an annual basis.
Here are three key ways to make your future benefits fatter:
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1. Work for 35 years — or more
First off, understand that the formula used by the Social Security Administration (SSA) to determine your benefits takes into account your earnings in the 35 years in which you earned the most — adjusted for inflation, of course. So if you only work for, say, 30 years, there will be five zeroes factored into the equation, reducing the average meaningfully. To prevent that, aim to work at least 35 years.
For some people, there’s a good case for working more than 35 years. If, for example, you’re earning considerably more than you have before (on an inflation-adjusted basis), for every additional year you work beyond 35 years, the calculations will toss out your lowest-earning year. So by working, say, 38 years, you can eject three years’ worth of low earnings, replacing them with high earnings and thereby beefing up your average earnings.
2. Earn as much as you can, up to the annual cap
This strategy may be obvious, but not everyone thinks of it: Earn more. The more you earn, the fatter your benefits will be — up to a point. The point is the earnings cap (which is adjusted upward in most, if not all, years), beyond which additional earnings won’t affect your benefits. For 2023, that cap is $160,200.
So spend some time thinking about your most suitable options for increasing your earnings. Some might try to climb their career ladder faster, perhaps by earnings new professional certificates or designations. Others might look for better-paying jobs within or outside their current field of work. Some might prefer to take on a side hustle or two — such as making and selling crafts, pet-sitting, giving voice or language lessons, or doing freelance work such as writing, editing, and designing.
3. Delay starting to collect your benefits — or don’t
Finally, know that each of us has a “full retirement age” at which we can start collecting the full benefits to which we’re entitled, based on our earnings history. For most of us, it’s 66 or 67 or somewhere in between. You can start collecting your benefits as early as age 62 and as late as age 70, though, and starting earlier will shrink your benefits, while delaying beyond your full retirement age will increase your benefits by about 8% per year. So delay from 67 to 70 and your benefits will be about 124% bigger.
For many people, it’s smart to delay until age 70, if possible. For anyone who isn’t in the best health or has a lot of relatives who have lived shorter-than-average lives or who simply needs the money as soon as possible, starting to collect benefits early can make plenty of sense.
Take a little time to read up on Social Security, so you can make smart moves that help you get as much as possible out of the vital program.
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