In 1935, Social Security was intended to provide a safety net for people who were unable to accumulate sufficient retirement savings. Today, this has turned into a social program that slightly more than 60% of seniors rely on for at least half of their monthly income.
An increasing number of people are starting to pay attention to their benefits, and Social Security planning is becoming a vital element in securing enough income. Here are 4 planning tips that you should follow in order to increase the size of your Social Security checks:
1. Gain a high-earning position
The first factor of interest from the SSA (Social Security Administration) is your average earnings history. In other words, the more you earn, the bigger your payout (up to a certain point). The maximum monthly benefit payable under Social Security is $2,788 as of 2018. If you work in a high-demand industry and land a well-paying job you’ll be setting yourself up for a solid monthly check come retirement time.
2. Work as long as possible
Next, the SSA calculates your final benefit amount based on your lifetime earnings covering your highest 35 years of work history (totaling your earnings of your highest 35 years and averages them by using an average indexed monthly earnings formula). If you entered the workforce late, or had periods of unemployment, those years will count as zeroes, which will be included in the formula, bringing down the average. Once you have worked 35 years, each additional year of earnings will replace an earlier year of lower earnings, which will increase the average.
Go a step further by considering working beyond 35 years. Perhaps you lacked the skill set necessary to garner a high wage in your teens or early 20s. By your 60s you’ll likely have plenty of work experience, which could translate to a higher annual wage – even after adjusting for inflation and lift your overall earning average over your 35 highest-earning years.
3. Delaying claims
For most people retiring today, the full retirement age (FRA) age is 66. But very few people know that if they delay their Social Security benefits until after they reach FRA, they can effectively earn an 8% return on their available benefits every year. This means an individual claiming at age 70 can earn up to 76% more than an individual claiming at age 62 with an identical work history and earnings history.
A vital point to remember is to know your FRA, or the age at which the SSA deems you eligible to receive 100% of your monthly benefit. It’s determined by your birth year, with the newest retirees (in 2018) who were born in 1956 having an FRA of 66 years and four months. If you claim before this age, your benefit will be permanently reduced for life. If you wait until after this age, you can net an even larger monthly check.
4. Claiming spousal benefits
If you and your spouse were born in 1953 or earlier (and have both reached full retirement age), you can claim spousal benefits and let your own benefits keep growing. This way, when you reach 70, you can switch to your higher benefit. A factor worth noting here is you can’t have claimed your own benefit if you want to make use of this restricted application.
If you’re now divorced and married at least 10 years, you may be able to claim spousal benefits based on your former spouse’s earnings history. Best of all, it won’t have any impact on what your ex-spouse receives on a monthly basis.
To qualify for the ex-spouse option you must remain unmarried and of Social Security claiming age (at least 62). Also, your benefit based on your work history would have to be lower than what you’d receive by claiming spousal benefits from your ex-spouse.
The good news is that staying on top of your personal Social Security information is easier than ever. These four steps will go a long way toward helping you get the most out of your Social Security benefit and providing more financial security during your retirement. Want to know more? Check out the SSA.Gov PDF on how work affects your benefits here.
Are you looking for innovative ways to live the retirement you always dreamed of? Contact a retirement income specialist at CKS Summit Group; Our focus is to bring you fresh new ideas for your retirement income. We look forward to setting up your complimentary strategy session today.