Most American retirees rely on Social Security for their financial core. Knowing how to maximize your Social Security benefit can make all the difference between a decent income and a handsome one, maybe even doubling that average $1,600 up to the maximum benefit of $4,018 in 2025.
How Social Security Benefit is Calculated
The Social Security Administration calculates your retirement based on your Average Indexed Monthly Earnings, or AIME, which refers to using your highest 35 years of earnings.
The PIA determined from this AIME is what tells you the benefit amount you would receive at your Full Retirement Age.
Important Factors Determining Benefit Amounts
- Lifetime Earnings: The higher your lifetime earnings, the higher your AIME will be and, therefore, your benefits will be higher.
- Years Worked: Working fewer than 35 years means zero-income years in your benefit calculation, which lowers your AIME and, subsequently, your PIA.
- Age at Claiming Benefits: Early retirement reduces the benefit permanently. Delaying to age after FRA increases your monthly payment due to delayed retirement credits.
Ways to Boost Your Social Security Income
Work for at Least 35 Years– The SSA determines your benefits using your highest 35 years of earnings. If you work less than 35 years, the missing years are counted as zeroes, which can greatly reduce the amount of your benefit. Thus, making sure you have a full 35-year work history is crucial.
Earn Higher Wages– Since your benefit is directly proportional to your income, increasing your income will increase your benefits. This may mean finding a better job, requesting a promotion, or gain a skill to improve your income.
Delay Taking Benefits Until Age 70– Even though you are eligible to take Social Security at age 62, your benefit will be less than if you wait. Instead, delaying your benefits beyond your FRA, which is 67 for people born in 1960 or later, increases the amount of money you get monthly by up to 8 percent per year up to age 70. That can really make a difference in your retirement income.
Potential Benefits :
How varying claiming ages can impact your monthly Social Security benefits is shown in the table below:
| Claiming Age | Monthly Benefit |
|---|---|
| 62 | $2,831 |
| 67 (FRA) | $4,018 |
| 70 | $5,108 |
Other things to think about:
- Spousal Benefit: If you are married, you can get up to 50% of your spouse’s FRA benefit as spousal benefits. Coordination with your spouse is often required to maximize your combined Social Security income.
- Tax Implications: Depending on your total income, there may be federal taxes levied on your Social Security benefits. This will further help you handle your retirement funds as it will help in tax planning.
Increase your earnings, work for a full 35 years, and delay until you reach age 70 to maximize your potential Social Security benefits.
These strategies will thereby enhance your retirement financial stability with an increased monthly benefit.
FAQS:
Can I receive Social Security payments if I continue to work after I reach my Full Retirement Age?
Yes, you can receive benefits while working beyond your FRA. In fact, if your current earnings are among your highest in the last 35 years, you can improve your benefits by continuing to work.
How will the Cost-of-Living Adjustment (COLA) affect my benefits?
The SSA uses COLA on a yearly basis to adjust benefits for inflation, which helps to maintain the purchasing power of Social Security payments.
Are social security benefits taxable?
Yes, depending on your total income, up to 85% of your Social Security benefits may be subject to federal income taxes. It is best to contact with a tax specialist to determine how this pertains to your circumstances.