In 2018, $1,404 a month is the average Social Security benefit amount for all workers. This totals $16,848 a year. That is a substantially low income for the nearly 25% of married couples and the more than 40% of single individuals who rely significantly on Social Security as their retirement income.
Your benefit amount should be as generous as possible regardless of whether you will be depending on it for support or using it to supplement your investment income. The following list includes the things you will want to do in order to increase your Social Security benefit.
1. Postpone Claiming Your Benefits
The absolute best way to maximize your Social Security benefits is to delay in claiming them. Full retirement age (FRA) isn’t until the age of 67 if you were born during or after 1960. Even so, the most popular age to claim Social Security is 62.
If you decide to retire before FRA, your Social Security benefits will be greatly reduced. However, if you retire after FRA, your benefits will continue to increase until the age of 70. Once you turn 70, no further increase will be made. This reduction or increase in benefit amount is permanent. Should you decide to retire at age 62 accepting a reduced benefit, you will be paid that reduced amount throughout your retirement.
The reduction in benefits is 5/9 of 1% per month should you choose to retire 36 months or less before FRA. Should you decide to retire more than 36 months earlier than FRA, your reduction will be an additional 5/12 of 1%. However, if you decide to retire after FRA, your benefits will be increased by ⅔ of 1% for every month you delay.
The following chart indicates exactly how much your Social Security benefits would increase or decrease based upon a Social Security benefit of $1,645 at full retirement age.How your Social Security benefits are affected by your chosen retirement age:
|Age||Change to Full Retirement Age Benefit|
|62||30% Less than FRA Benefit|
|63||25% Less than FRA Benefit|
|64||20% Less than FRA Benefit|
|65||13.3% Less than FRA Benefit|
|66||6.7% Less than FRA Benefit|
|67||Full Benefit Amount|
|68||8% More than FRA Benefit|
|69||16% More than FRA Benefit|
|70||24% More than FRA Benefit|
2. Remain Employed Longer
A formula is used by the Social Security Administration to establish your anticipated benefits. It is based on your earnings and adjusted to consider wage growth. If you have not worked for at least 35 years, you will see that some years’ earnings are $0.
This makes a considerable difference. Let’s consider this hypothetical scenario. You made $50,000 per year during your 35-year career, once indexing for inflation. Your average indexed monthly earnings, which is what your benefits are based on, would equal $4,167 each month.
However, if you earned that same amount during your 25-year career, your average indexed monthly earnings would equal $2,967 each month. That 10-year period of zero earnings drastically reduces the average wages the benefit is based on by nearly 30%.
Granted, the majority of people do not make the same amount of money throughout their careers. If your income is greater at the end of your career rather than the beginning, working an extra year would certainly increase your Social Security benefit. Even if you have accumulated 35 years of work already. One year of lower earnings could be replaced by a year of much higher earnings. The more substantial your salary is towards the ending of your career in comparison to the beginning, the greater the impact working that additional year will make.
3. Increase Your Earnings
Social Security benefits are based upon wages. Receiving higher wages impacts the benefits dramatically.
Negotiating your salary once you’re hired is one of the most effective ways of increasing your earnings. CareerBuilder conducted a survey which revealed that even though 56% of workers didn’t consider negotiating their salaries, 52% of employers first offered a lower wage than what they were actually willing to pay. For approximately 25% of employers, the first offer presented was at least $5,000 lower than their bottom-line salary figure. Consider that future raises are oftentimes predicted by starting salary. You could essentially be leaving a small fortune on the table.
Suppose you were offered a starting salary of $50,000. You accepted that salary, and now receive 1% yearly raises. Now compare yourself to the individual who was also offered $50,000, but instead negotiated their salary up to $55,000, and now enjoys their negotiated 2% yearly raises. As you can see, you being the non-negotiator would end your 35-year career with a salary of approximately $71,000, with lifetime earnings of a little over $2.15 million. While the negotiator would end their 35-year career with approximately $110,000 in wages and lifetime earnings of $2.86 million. Assuming that in both scenarios retirement occurred at FRA, the individual that negotiated would have not only earned greater than $700,000 in surplus income but would also enjoy Social Security benefits close to $3,000 more per year.
Need creative ideas to help you to earn more? Try taking on a side hustle in order to increase your income, or improve your knowledge base by learning new skills that will provide you with better career opportunities and the path to earning a more generous wage.
4. Coordinate Benefits between You and Your Spouse
There are many claiming options for married couples concerning Social Security. Since you are able to claim benefits on your spouse’s work record, it is important to determine the method that maximizes both of the spouses’ combined income stemming from Social Security. Take for example:
- The lower-earning spouse could claim benefits prematurely in order to provide the couple with enough income to live on while allowing the higher-earning spouse’s benefits to continue to increase.
- The higher-earning spouse could claim benefits prematurely in order to initiate the option of the lower-earning spouse claiming benefits on the higher earners work record.
There literally exists 81 different ways for married couples to claim Social Security benefits. It is wise to speak with a financial advisor that specializes in Social Security to best determine the right approach so as to maximize your income.
5. Don’t Live in a State that Taxes Your Benefits
This portion of information is extremely important to those who have already retired and are looking to increase their Social Security benefits. Currently, there are 13 states that will likely tax your Social Security benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia.
If you happen to live in one of the states mentioned and your benefits are being taxed, you may want to consider relocating in order to increase the amount of Social Security income you will receive. There are other fabulous places that are tax-friendly and popular places for retirees, such as Florida and Nevada.