We have a lot more control over our Social Security checks than most people realize. By making the right choices today, you can set yourself up for a much more comfortable retirement. All you need to do is familiarize yourself with how the government calculates benefits and then use that knowledge to your advantage. Here are three popular examples of how to do that.
1. Maximize your income over 35 years
Your average indexed monthly earnings (AIME), or your average monthly earnings over your 35 highest-earning years adjusted for inflation, form the heart of your Social Security benefit calculation. The government uses this to determine how large your checks are. The higher your AIME, the more money you get from the program.
Increasing your income today by pursuing promotions, switching employers, or starting a side hustle will raise your AIME. But you should know there's a cap on how much of your earnings count toward your Social Security benefits each year. In 2021, you only pay Social Security taxes on the first $142,800 you earn, so only this amount counts toward your AIME.
For some people, increasing income is a struggle, but that doesn't mean you're stuck with a low AIME. Working for at least 35 years can also make a difference. Those who work fewer years than this have zero-income years included in their benefit calculation, and these can shrink your checks considerably. People with 35 or more years in the workforce under their belts won't have to worry about this.
Working even longer than this could be wise. People typically earn more later in their careers than they did when they were first starting. When you work more than 35 years, your higher-earning years start to replace your lower-earning years in your benefit calculation, resulting in a higher AIME and, consequently, larger Social Security checks.
2. Delay benefits
The government uses the applicable Social Security benefit formula on your AIME to determine your benefit at your full retirement age (FRA). This is somewhere between 66 and 67, depending on your birth year. But if you don't sign up for benefits at this age, the government runs another calculation to determine how much your checks will grow or shrink.
Starting Social Security before your FRA reduces your benefit. Those with a FRA of 67 only get 70% of their full benefit per check if they sign up right away at 62, while those with a FRA of 66 get 75% of their full benefit per check at 62.
Every month you delay benefits increases your checks slightly until you qualify for your full benefit at your FRA. But you can also continue delaying checks if you want more money. You qualify for your maximum benefit at 70, which is 124% of your full benefit per check if your FRA is 67 or 132% if your FRA is 66.
This could be a sound strategy if you have enough personal savings to support yourself until you plan to sign up. Once you begin claiming, you'll have larger checks that will cover more of your expenses, so you can rely less upon your personal savings.
But it's not the right decision for everyone. If you can't afford to pay your bills without Social Security or you don't believe you'll live past your 70s, you're better off signing up for benefits right away.
3. Coordinate with your spouse
Coordinating with your spouse can help the two of you secure the largest household benefit possible. When both people qualify for Social Security in their own right, the Social Security Administration will give each person the larger of their own benefit or their spousal benefit, which is up to 50% of their partner's benefit at their FRA.
When both people earned roughly the same amount over their working lives, they'll get the most out of the program if they both delay benefits as long as possible. But when one person earned significantly more than the other, it could make sense to have the lower earner sign up for benefits sooner. Their benefits can help the couple pay their bills, while the higher earner delays Social Security until they qualify for their maximum benefit at 70.
If you're not sure what kind of benefit each of you qualifies for, you can find out by creating a my Social Security account. Use this information to decide when it makes sense for each person to sign up for benefits.
You could use one or a combination of these strategies to boost your Social Security benefits. Think about which make the most sense for you right now and put them into action. Make sure you adjust your retirement plan based on how much you expect from Social Security, too, to make sure you know how much you need to save on your own.