If you have focused all your retirement planning energy on your 401(k), you may be missing a key piece of the puzzle: Social Security. You can influence your eventual payout from this safe, dull old-age safety net to a surprising degree by making some adjustments and changes in your planning.
1. Work more years
You must work at least 10 years to collect Social Security. The size of your benefit checks is decided by a formula that is based on your 35 highest-earning years of work. If you didn’t work 35 years, the formula uses zeros for the missing years. Zero years lower your benefits, so add as many more years of work as you can. SocialSecurity.gov explains the details and shows how benefits are calculated.
2. Avoid claiming too early
Your age when you start Social Security makes a big difference in the size of your checks. (This chart shows how.) You can start as early as age 62, but your checks will be forever 25 percent to 30 percent less than you’re due, depending when you were born. And, if you die first, your spouse’s Social Security survivor benefits will be smaller than if you’d waited.
Some people have no choice. Many retirees stop work earlier than they planned because of illness, unemployment or to be caregivers. In that case, try to use other sources of income if possible, so you can hold off claiming until you’re older.
3. Aim for full retirement age
Social Security calculates monthly checks on your “full retirement age.” That’s when you are eligible for 100 percent of your Social Security benefit.
Full retirement age varies: It’s age 66 for people born from 1943 to 1954, increasing gradually to 67 for those born after 1959. To get all the benefits you can, use this Social Security calculator to find your full retirement age and plan your retirement around it. The longer you wait, the larger your checks and your cost-of-living adjustments, which are based on your monthly checks.
4. Raise your income
Doing what you can do now to grow your income will fatten your Social Security checks in the future. Use the Social Security Retirement Estimator to see the effects of more income on your benefits. The estimator taps into your personal work history to give a reasonably accurate estimate of benefits.
Some ways to boost your income:
- Focus on regular raises. Assess your value at work and approach your employer the smart way.
- Consider changing employers if your salary has topped out at your current job.
- Plan for professional growth, including evaluating whether more schooling would be worth the cost or whether you should enter a new line of work.
5. Go for the gold: $2,685.50
The average Social Security check this year is $1,328 for those who collect at full retirement age, according to the Social Security Administration. But you may be able to do better — much better. In 2015, the maximum monthly amount paid is $2,685.50, the SSA says. That’s more than double the average.
Planning ahead counts. Use the Social Security Retirement Estimator, even in your 40s, 50s or early 60s, to see what you’d need to do (retire later? earn more now?) to max out your eventual monthly benefit.
6. Hold on until age 70
Delaying Social Security as long as possible is not for everyone. If you have reason to believe you won’t live long, perhaps you should collect early. But, if your relatives are long-lived and you’re fairly healthy, you may outlive your retirement savings. Americans’ life expectancy is rising: it’s at an all-time high of nearly 79 years, according to the latest numbers from the Centers for Disease Control and Prevention. Men live an average of 76.4 years; women, 81.2 years. More important, the life life expectancy for a 60 year old male is 82 years; for a female it is 86 years.
Lock in a higher income in your late 80s and 90s by waiting to collect Social Security until you are 70. That grows your benefits by as much as 8 percent a year, as good or better than you can do in the stock market. An example from SSA: a $750-a-month benefit at age 62 grows to $1,320 a month by waiting to age 70. There’s no benefit, though, in waiting past 70. Learn the facts of your case by calling Social Security at 800-772-1213. Or find an office near you and pay a visit.
7. Get professional help
In many instances an informed decision about when to claim which Social Security benefits can boost benefits by tens of thousands of dollars over your lifetime, especially for couples.
Various companies will prepare a customized analysis revealing exactly when to claim Social Security benefits to receive the maximum lifetime payout.
Because the claiming strategies for couples can be complex, an inexpensive analysis showing exact dates when each of you should claim could be well worth the cost.
8. Look into spousal benefits
Married people have an advantage in the Social Security system. Even a spouse who never worked can claim benefits. Married people can receive half their spouse’s Social Security benefit, and that may be more than they’ll make on their own. Divorced people (here are the rules) married 10 years or longer qualify, too. Here is the SSA explanation of same-sex couples’ benefits and rights.
To get spousal benefits you must be at least 62 and your spouse, the primary worker earner (government jargon for the one with the biggest benefit), must be receiving Social Security checks or be eligible for them.
9. Pump up your spouse’s survivor benefit
When you die, your Social Security benefits end. But your widow or widower may earn survivor benefits, possibly as much as half of your full retirement amount. (Here are the SSA rules.) The bigger your benefit, the more your spouse will receive when you’re gone, so do all you can now to increase your benefit checks.
10. Weigh the cost of working while claiming benefits
The government reduces your Social Security checks by $1 for every $2 you earn if you start your benefits before full retirement age and make more than $15,720 in 2015. (The penalty stops on earnings above $41,880.)
See the rules to weigh the pros and cons of working while collecting Social Security. You might decide it’s better to hold off collecting, given the penalty and the fact your benefits will keep growing while untouched. And, remember: You’ll get all the money back in bigger checks after you hit full retirement age, the SSA says.
11. File and suspend
A great way for married couples to increase their combined payout is to “file and suspend,” as Kiplinger explains in an article on Social Security strategies for married couples. Here’s how it works:
- The older worker, a husband, for example, files for benefits at full retirement age and asks to suspend those benefits instead of receiving them. That lets him keep on working, or drawing income from other sources, so his benefits can keep growing.
- This allows the wife, starting at her full retirement age, to claim spousal benefits instead of early retirement on her own work record. Now both spouses’ benefits can keep growing while the couple enjoys income equal to about half the husband’s full-retirement benefit.
- The husband can collect super-sized benefits when he’s 70, and the wife can continue collecting spousal benefits or claim benefits on her own account, whichever is larger. In addition, if the husband dies first, his wife’s survivor benefit now is as great as possible.
12. File a “restricted application”
If you’re the higher earner, you can bring in some extra money by applying for a spousal benefit at your full retirement age, and still allow your own benefit to grow until age 70. Once you turn 70, you can switch to your own benefit and your spouse can claim a spousal benefit, of up to 50 percent of your primary insurance amount. However, her survivor benefit will equal up to 100 percent of your delayed benefit if you die first.
13. Watch out for taxes
If your only income in retirement is from Social Security, you probably won’t have to worry about paying income tax. But if you have additional income from other sources, try to reduce your total income to minimize the tax bite. Depending on your income, up to 85 percent of your benefits could be taxed.
Taxes are based on your combined income: your adjusted gross income plus half of your Social Security benefit plus non-taxable interest. The SSA explains in detail.
If combined income is more than $34,000 ($44,000 for couples), as much as 85 percent of your benefits may be taxable. You can reduce your tax bill in retirement by cutting expenses so you need less income and choosing investments with an eye to reducing taxes.
Personal finance blogger Joe Udo describes tax strategies in retirement for US News.
14. Pay off debts
Certain debts, including federal taxes, child support or alimony and federal student loan balances, can be garnished from Social Security checks. Pay them off before retirement so you can keep your entire benefit check.
15. Check for errors
Keep an eye out for your Social Security statement in the mail each year or find your statement online. Look it over to ensure your income is reported correctly. Get credit for every penny you’ve earned to boost your eventual benefit checks.
16. Collect benefits for minor children
Once you start collecting benefits, your unmarried dependent children 18 or younger can receive benefits (see details here), too. Biological children, adopted children, stepchildren and grandchildren are eligible as are (details here) full-time high-school students aged 18 to 19 and children disabled before age 22.