With the prices of almost everything on the rise, many people wonder how they can get more out of their Social Security benefits. Living on Social Security can be tough, so it is imperative that you get the most out of your retirement benefits as possible. So, just what can you do to maximize those benefits and ensure that you are getting the highest monthly payments that you can get? There are several things that you can do to potentially increase your benefit amount, and we will discuss several specific items in this article. Keep reading to learn more!
Social Security Benefits Overview
Before you can learn how to maximize your benefits, you need to have a good understanding of how Social Security works. At a high level, the concept is fairly simple. While you are working, you pay into the Social Security system through payroll taxes. This income tax, along with the Medicare tax, is collected and placed into the Social Security trust funds. The money in the trust funds is invested in U.S. government securities, and the trust funds are used to pay benefits to current retirees and those on Social Security disability.
Once you reach full retirement age, you start to reap the rewards of paying into the system during your working years. You can then start to receive retirement benefits from the Social Security Administration (SSA). The amount that you receive is calculated based on your wages during your working years. So, your Social Security income is directly related to how much money you paid into the system. The average Social Security payment in the United States is about $1,500 per month while the maximum payment is around $3,900. Not only can you receive benefits based on your own earnings history, but you can also receive spouse’s benefits from the work history of your spouse or survivor benefits which are available to a surviving spouse when one spouse passes away.
8 Tips To Increasing Your Benefit Amount
Many people ask, “How do I maximize my Social Security benefits?” Now that you are familiar with how the system works, let’s dive into specific actions that you can take to make the most of your benefits. You might not be eligible to perform each of these, but you should at least explore the possibility to see whether they will work for you. You are almost certain to find a few that will help you get a bigger Social Security check.
— Delay Starting Your Benefits
This is one of the biggest tips out there. If at all possible, you should delay starting your benefits as long as you can. While we know it is not financially feasible for everyone, you should do everything you can to wait until full retirement age or later to start your benefits. Getting your benefits early can reduce your benefit amount by 25% or more in some cases. That is a big cut! You can even use the Social Security planner to see how your benefits would be affected by starting early. However, waiting until age 70 to start your benefits will increase the amount that you would normally receive. If you have the means to make it to age 70 without Social Security, then waiting until then to start your benefits will help give you the biggest check possible.
— Work At Least 35 Years
Your Social Security benefit amount is calculated using your highest 35 years worth of indexed wages. If you have not worked for at least 35 years, then the Social Security Administration still uses 35 years worth of data to perform the calculation. That means that they will add zeros as your income for those years. For instance, if you have only worked for 25 years, then your calculation will include a zero for ten years of your work history. This can have a huge negative effect on your final benefit amount, so you should try to make sure that you have at least 35 years worth of earnings on your record before you start receiving your benefits.
— Max Out Your Indexed Wages
This one might seem obvious, but you will want your indexed wages to be as high as possible. When working at a company and earning a regular paycheck, there is not much that you need to do. However, for self-employment income or tip income for those in a service industry, this should stress the importance of making sure you report tips and claim all your income. Many people might forget to claim cash tips and only report tips left on a credit card or debit card. While it might be tempting to put a little aside without reporting it, that is not a good idea. Not only could you get in trouble with the IRS now, but doing this will also lead to a lower earnings history and lower Social Security payments in retirement.
— Claim Spousal Benefits First
If you have a spouse who is also entitled to benefits, then you might be able to get the best of both worlds. When you both reach full retirement age, you could claim spousal benefits and start drawing those benefits based on your spouse’s earnings record. However, your own benefit amount will continue to grow. Once you reach age 70, then your personal benefit will be maxed out. At that time, you can switch from spousal benefits over to your own benefit which will then be as high as possible. Remember this one catch, though. For this to work, you must start the spousal benefits before applying for your own benefits. If you have already started your own benefits, then this tip will not work since you will not be able to take advantage of this special restricted application.
— Watch Out For Taxes
Believe it or not, Social security benefits are taxable in some situations. Whether or not your benefits are taxable depends on your total taxable income and adjusted gross income for the year. Up to 85% of your benefits could be subject to income tax if your income is above the threshold. You should keep this in mind if you plan to work after you start your benefits or if you are receiving income from another type of retirement account like an IRA or 401k. There are ways to spread out your income from these accounts so that you can minimize the amount of tax that will be due. You should always consult a qualified financial planner or tax advisor to assist you with these strategies.
— Be Aware Of Earned Income Limit
This applies to people who are still working and start their benefits prior to reaching full retirement age (FRA). In that case, there is an earned income limit for those benefit recipients. This means that your benefits might be reduced if you earn too much money before FRA. In 2021, if you earn more than $1,580 per month, then your benefits will be reduced if you are under age 65. This means that for every $2 you earn above the limit, your monthly benefit amount will be reduced by $1. That can add up to a large reduction if you are still working. Note that your benefit amount will be recalculated when you reach full retirement age.
— Keep An Eye On Earnings Record
Another way to make sure you get the maximum possible amount back from your Social Security taxes is to keep an eye on your Social Security earnings record. You can easily access this through a mySocialSecurity account at SSA.gov. You will want to make sure that your record with your “My SSA Account” matches up with the amount claimed on your Federal income tax return each year. You can also match these amounts up with your Form W-2 for each year, unless you are self-employed. You can also use your account to access benefit estimates, although be sure to read the disclosures on these estimates regarding estimated future income and benefits.
— Remember Your Ex-Spouse
Many people want to forget their ex-spouse, but that might not be a great idea when it comes to Social Security. In some cases, you might be able to claim benefits from their earnings record. If you were married for more than 10 years, and you have not remarried, then you could potentially still claim benefits from them. You will need to be at least 62, and your benefits based on your earnings record must be lower than the benefits you would receive by claiming your ex-spouse’s record. However, this can be used as a last resort and could get you a higher retirement income in some cases.
Other Retirement Planning Considerations
As you can see, living on Social Security alone could be quite difficult. This is why it is extremely important to consider other alternatives when saving for retirement. You should not rely on Social Security, and you should start your own retirement savings accounts as well. This could be in the form of an IRA, 401k, or some other type of account. The important thing is to start saving early and save as much as you can.
The rules about retirement distributions and taxes can get extremely complicated when you combine them with Social Security benefits. You should always consult a financial advisor for help with your specific personal finances. They can advise you on the rules whether you are single or a married couple as the rules for each are slightly different. The biggest takeaway here is to make sure you are planning for retirement appropriately. Simply thinking that the Social Security taxes you pay today are going to support you during retirement is not a good plan.
The Bottom Line
You might think that your Social Security benefit is set in stone no matter what you do. That is not the case! There are some simple steps that you can take to maximize Social Security benefits, and those steps are not extremely difficult or complicated. Maximizing your benefit amount is more important than ever before with the current rate of inflation and cost of goods. Go ahead and take action today by following these steps to make the most of your Social Security benefits.
Frequently Asked Questions
What is the Social Security tipping point?
Most people consider the Social Security tipping point to be the year 2033. This is when projections show that the system will no longer have enough money to fully fund its obligations. At that time, only about 76% of benefits can be paid from the funding that Social Security will be receiving.
Are Social Security benefits taxable?
Whether Social Security benefits are taxable depends on your total adjusted gross income. If you are single and make between $25,000 to $34,000 per year, then you will pay taxes on 50% of your benefits. If you make more than $34,000, then 80% of your benefits will be taxable. For married couples, the rules are similar; however, the amounts are different. For combined incomes, the limits increase to $32,000 and $44,000, respectively.
Will Social Security still be around when I retire?
More than likely, Social Security will still be around for many years. However, some changes will be required within the next ten years or so. Social Security is only fully funded through the year 2033 according to the latest trustees report. Changes will be required in the future to keep the system operating. This could be a reduction in benefit amounts, a higher retirement age, increased taxes, or some combination of those things. No one is for certain what the changes will look like, but Social Security as a whole is not likely to go away any time soon.
