(Sam Swenson, CFA, CPA)
When it comes to locking in higher Social Security benefits, learning the basics is a productive first step. If you want to have a higher spending threshold in retirement, earning more and working longer are key behaviors to focus on.
Only a small minority of workers achieve the feat of locking in the maximum Social Security payment of $4,194 per month. Perhaps a more realistic goal is to focus on factors you can immediately control.
Below, we’ll review three ways to get a bigger monthly Social Security benefit in retirement.
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1. Earn more
The Social Security system works much like an insurance company: you pay “premiums” in the form of payroll taxes over your working career and collect a retirement benefit that matches the amount you paid in. The more you pay into the scheme, the more you can expect to receive when you claim your retirement benefits. Simple.
The Social Security Administration (SSA) taxes employee earnings at a rate of 6.2%, up to a maximum earnings base of $147,000 in 2022 (soon to rise to $160,200 in 2023). Any amount you earn up to this amount is taxed accordingly, so the more you earn, the more you pay into the system. To the extent that you can earn more, you will be rewarded with a larger monthly check in retirement.
2. Work longer hours
The SSA considers your entire work history when determining your Primary Insurance Amount (PIA). More precisely, it takes into account your 35 years of highest earnings. If at any point in your working career you have recorded years with zero income, those zeros will drag out your calculation. If you don’t have 35 years of work to show yet, you might consider working until you do. This ensures a stronger income stream when it comes time to collect benefits.
To see where you currently stand, it’s a smart idea to log into your Social Security account through the Social Security Administration’s website to see if you have zero income years as part of your primary insurance calculation. If you do, depending on how bearable your current work situation is, it may make a lot of sense to stay at your job a little longer to maintain a higher level of spending in your older years.
3. Spousal benefits
It may seem obvious, but coordinating benefits with your spouse is an effective way to get more out of Social Security. If you were the lower-earning spouse or stay-at-home spouse during your career, you would be entitled to collect up to 50% of your spouse’s benefit – assuming your spouse started receiving the Benefits pension.
If you qualify for Social Security benefits based on your own earnings, you can start collecting them as early as age 62. When your spouse starts receiving monthly pensions, you will receive a potential increase in spousal benefits if they exceed your own pension.
You’ll only get the full 50% if you’ve reached your full retirement age, which for current 60-year-olds ranges from 66 to 67. Interestingly, spousal benefits also apply to ex-spouses with whom you have been married for at least 10 years.
Plan your Social Security strategy
Much of what determines how much you’ll get in retirement happens long before you claim. Earning more and working longer are two keys to receiving more benefits. Coordinating with your spouse is another way to maximize your total income.
Take the time to consider all factors – both financial and non-financial – and develop a Social Security strategy with your family. If you have problems, do not hesitate to contact a qualified financial planner for objective advice.
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