There are many misconceptions about Social Security, and one of the most common is that everyone receives the same monthly benefit. This couldn’t be further from the truth. Your monthly retirement benefit depends on several factors, many of which you can influence. If you want to maximize your Social Security benefits, consider the following three strategies.
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Work History
Your Social Security benefit is calculated based on your 35 highest-earning years. If you haven’t worked for the full 35 years, years of zero earnings could be factored into your benefit calculation, significantly reducing your monthly payout. Therefore, it’s crucial to aim for at least 35 years of earnings with taxable income to optimize your benefit.
If you’re approaching retirement and haven’t reached 35 years of work and taxable income, consider extending your career a bit longer, especially if you are in good health and have not reached full retirement age (FRA). This doesn’t necessarily mean staying in a full-time role; part-time work and freelance earnings also count towards your income, as long as you report the income and pay the necessary taxes.
Maximize Your Earnings
Higher lifetime earnings generally translate to a higher Social Security benefit, up to the program’s maximum limit. Increasing your income during your working years can lead to a more substantial benefit in retirement.
One effective method to increase your earnings is to take on a side job or find a passive income revenue stream. While seeking a promotion or a higher-paying position at your current job could be an option, it might not always be feasible due to limited upward mobility in some companies.
Changing jobs can also be challenging, especially if you have obligations that prevent you from moving. A side gig or passive income, on the other hand, can provide a more predictable increase in finances that will count towards your taxable income.
This additional income can also help you contribute more to retirement accounts like IRAs or 401(k) plans, giving you more financial resources in retirement beyond just Social Security. Many people find it challenging to save for retirement due to the burden of daily expenses, especially with the recent surge in inflation. Supplementing your income with a side job can alleviate some of this pressure and allow you to save more effectively.
Benefits
Your FRA determines when you can receive your complete monthly Social Security benefit. For those born in 1960 or later, the FRA is 67. For those born before 1960, it’s 66 or 66 and a few months.
You can start claiming Social Security as early as age 62, but doing so will result in a reduced monthly benefit. To avoid this reduction, it’s best to wait until you reach your FRA. However, if you delay filing past your FRA, you can increase your benefit. Each year you wait beyond your FRA up to age 70 increases your monthly benefit by 8%.
It’s important to note that delaying benefits beyond age 70 doesn’t yield any additional financial advantage. But if your FRA is 67 and you wait until age 70 to claim benefits, you could enjoy a permanent 24% increase in your monthly benefit, which equates to an 8% increase for every year you wait to claim.
Many seniors relying solely on Social Security struggle financially. To avoid this situation, it’s wise to have additional savings or other income sources. By carefully planning and implementing these strategies, you can enhance your Social Security benefits and secure a more comfortable retirement.
FAQs
How is my Social Security benefit calculated?
Your benefit is calculated based on your 35 highest-earning years. If you haven’t worked for 35 years, zero-earning years are factored in, which can reduce your benefit.
Can part-time work affect my Social Security benefits?
Yes, part-time work and freelance earnings count towards your income, as long as you report the income and pay the necessary taxes, which can help increase your benefit.
What happens if I claim Social Security before my FRA?
Claiming before your FRA results in a reduced monthly benefit. It’s best to wait until your FRA or beyond to maximize your benefits.
Is there an advantage to delaying Social Security benefits past age 70?
No, delaying benefits beyond age 70 does not provide any additional financial advantage. The maximum increase is reached at age 70.
How can I supplement my Social Security income?
Taking on a side job, generating passive income, and contributing more to retirement accounts like IRAs or 401(k) plans can help supplement your Social Security income.