How to Maximize Your Social Security Benefits

Social Security provides a major source of income for the elderly (those ages 65+), representing about 30% of their overall income according to the Social Security Administration (SSA). More than 79% of elderly beneficiaries in fact receive 50% or more of their income from Social Security, while 27% rely on SS for over 90% of the same.

Regardless of which bucket you ultimately fall into, you’ll want to maximize your Social Security benefits so you can enjoy retirement to the fullest; this post details various approaches and strategies to help you do just that.

Delay your Social Security benefits

For many, this first option is easier said than done—especially if you’ll depend on Social Security as your primary source of income. If you can delay your claim, however, you should certainly do so to avoid leaving a large sum of money on the table.

While you can collect benefits as early as age 62, you’ll receive a more robust amount (about 7% higher) for each year you wait until reaching your full retirement age (when you first become entitled to your full Social Security benefits). If you wait even longer, this number ticks a smidge higher to approximately 8% for each year between your full retirement age and age 70.

To illustrate, let’s assume your full monthly Social Security benefit is $1,000: the amount you’d receive if you wait until your full retirement age. If you claim benefits at age 62, however, your benefit will be approximately 30% lower (or $700). As you can see, collecting too early means you could miss out on thousands of dollars a year that can help cover retirement-related expenses such as housing and healthcare; keep in mind the most recent Bureau of Labor Statistics (BLS) data claims retiree households (led by someone age 65 or older) spend an average of $57,818 per year, making this that much more important.

If you’ve already began claiming benefits, reached full retirement age, and are under 70 years old, you can suspend your retirement benefits to earn a higher amount. In this scenario, you aren’t forced to repay any of your benefits, and your benefit will earn credits of approximately 8% per year: resulting in a higher monthly payment. You can reinstate benefit payments at any time until the month you turn 70—which is when they’ll automatically kick in again if you take no action.

Just remember, however, that suspending your benefit also suspends benefits for anyone else receiving checks based on your work history (save for a divorced spouse). Furthermore, if you’re enrolled in Medicare Part B, the Centers for Medicare & Medicaid Services (CMS) will bill you for future Part B premiums as they can no longer be deducted from your suspended retirement benefits.

Max out your earnings

Your Social Security benefits are calculated using a complex formula but are generally based on your highest 35 years of covered earnings and the age at which you begin receiving benefits—with a maximum monthly payout of $4,873 (in 2024). Your covered earnings, meanwhile, are wages on which you’ve paid Social Security or payroll (FICA) taxes.

If you lack a 35-year work history, your benefit calculation will still include non-work years; Social Security will simply enter a zero for each year with no earnings reported. It’s therefore important to raise your lifetime income average by replacing those zero or low-income years with higher incomes until you begin collecting; doing so will help maximize the benefit owed to you.

It’s also important to know that to compute your final benefit, the Social Security Administration factors in the national average wage index (NAWI) that tracks year-by-year wage trends. Without diving into too many details, let’s just say the SSA indexes your earnings history during the year you turn 60 to adjust the same for wage inflation. Consequently, your Social Security benefits can dip if the NAWI drops that same year (a rare occurrence but one that does happen).

There is an exception to this calculation, however; if you’re aged 60+ and still working, the indexing will cease and your earnings will flow directly into your earnings record—unadjusted—and can therefore boost the likelihood this time period will represent your new “top 35” years.

Finally, it’s a good practice to check your Social Security statement every year rather than assume the numbers on there are accurate. Any miscalculation, even for just one or two years, can ultimately impact your benefits for the rest of your life.

Limit Social Security taxes

Your Social Security check is liable for taxation at both federal and state levels. If you file a joint return and your combined adjusted gross income falls between $32,000 and $44,000, you may need to pay federal income tax on up to 50% of your benefits (in 2024). This amount can jump to 85% if combined earnings exceed $44,000. For individual filers earning between $32,000 and $44,000, you may need to pay tax on up to 50% of your benefits (and up to 85% of your benefits may be taxable if you earn more than $44,000).

Note that if you reside in Colorado, Connecticut, Kansas, Minnesota, Montana, New Mexico, Rhode Island, Utah, or Vermont, your Social Security income will get taxed to varying degrees. If Social Security will likely represent your primary source of income during retirement, therefore, you may want to avoid retiring in these states based on taxes alone.

Thankfully, you can employ several strategies to stay below the afore-mentioned income tax thresholds. One popular option? Keep money in a Roth IRA account. Since these contributions are made using after-tax dollars, funds withdrawn from these accounts are tax-free—provided you make withdrawals after you turn 59½ and have owned the account(s) for at least five years.

Another way to minimize taxable income when drawing Social Security is to increase your taxable income before you begin claiming benefits. You can do so by taking distributions (withdrawals) from your deferred tax accounts (such as a 401(k) or traditional IRA) as these will count as income in the year you do so.

If you’re married, coordinate benefit claims

If you’ve been married for at least 10 years and file for retirement benefits, your spouse is eligible to claim spousal benefits on your employment record (beginning at age 62). The spousal benefit amount can rise to as much as 50% (or as little as 32.5%) of what you’d receive at your full retirement age, depending on when exactly your spouse claims the benefit. This is an important fact to know, especially if your spouse’s own personal benefit is worth less than yours.

You should also consider the impact on survivor benefits when developing your claim strategy because the surviving spouse will only receive one check: whichever is larger out of the two you were receiving. Note you can often maximize this amount by postponing Social Security benefits for the higher earner.

Consider working in retirement

Contrary to popular belief, it is in fact possible to work and collect Social Security at the same time. Doing so can help push back your claim and earn you a bigger benefit.

With that said, know the SSA sets yearly earnings limits—the dollar amount you’re allowed to earn before your monthly Social Security payment is temporarily reduced—if you work before hitting your full retirement age.

Based on 2024 limits, the SSA will deduct $1 from your benefit payments for every $2 you earn above the annual earnings limit if you fall under full retirement age for the entire year. In this scenario, the current limit is $22,320.

If you work during the year you’ll reach full retirement age, meanwhile, the SSA will deduct $1 for every $3 you earn above the limit. The 2024 limit is $59,520 in this scenario, counting only earnings prior to the month you reach full retirement age.

If you’re still working when you reach full retirement age, your earnings no longer reduce your benefits no matter how much you earn.

It’s important to note that for each scenario outlined above, you won’t lose your benefits; they’re instead just technically deferred and then credited when you reach your full retirement age. If you’re still working when you hit that milestone, your earnings will no longer reduce your benefits—no matter how much you make!

In sum: how to boost your Social Security payments

Claiming Social Security at the right time can feel like a complicated juggernaut, but if done correctly, can ultimately mean more money in your pocket—and the chance to enjoy a better retirement!

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Vision Retirement is an independent registered advisor (RIA) firm headquartered in Ridgewood, New Jersey. Launched in 2006 to better help people prepare for retirement and feel more confident in their decision-making, our firm’s mission is to provide clients with clarity and guidance so they can enjoy a comfortable and stress-free retirement. To schedule a no-obligation consultation with one of our financial advisors, please click here.

Disclosures:
This document is a summary only and is not intended to provide specific advice or recommendations for any individual or business.