Throughout your career, you'll work hard for your money -- and you'll pay some of it into Social Security. In exchange, you'll earn retirement benefits that will be there to help support you in your later years.
You deserve to get the most money possible from Social Security. Unfortunately, many people don't know how to do that. The good news is, if you take these three steps, you can make the most of this important retirement income source.
Image source: Getty Images.
1. Get paid what you're worth
If you want to get the Social Security benefits you deserve, you must earn the salary you deserve throughout your career. That's because benefits are based on average income in your highest 35 earning years.
Unfortunately, many people pass up the chance to increase their income. You are probably one of them if you aren't:
- Regularly learning new skills
- Advocating for yourself at work by negotiating for raises and for a higher starting salary when you're initially brought on board
- Looking for new career opportunities often, either with your current company or with others in your industry
You should make it a habit to do all of these things throughout your working life, because the more years you earn less than your full potential salary, the more future Social Security benefits you miss out on.
2. Know how the Social Security benefits formula works
If you don't understand how Social Security works, you are very likely to make decisions that reduce your benefits.
Specifically, as mentioned above, you should be aware your retirement checks will equal a percentage of earnings during the 35 years when your salary was highest. And you have more control than you might think regarding which years are part of this calculation. Here's why:
- If you work less than 35 years, you'll have one or more years of $0 wages included in your benefits calculation
- If you work exactly 35 years, every year will be included, even those when you didn't make much
- If you work longer, some years of lower wages will be pushed out by ones when you made more money
Because of this, you'll want to be sure you work at least 35 years -- or longer, if there were periods in your career history when you made less than you're earning now.
3. Understand how to calculate your break-even point
Your benefit is also affected by what age you are when you first get checks. You can claim your first check at age 62. But for each month you wait beyond that, payments go up. Of course, when you pass up checks, you miss out on income. To decide if a delayed claim makes sense, you'll have to figure out how long it will take you to break even. If you don't expect to live that long, then claiming benefits at 62 could be wise -- but if you expect to live longer, waiting would lead to more lifetime benefits.
To calculate your break-even point:
- Determine how much your benefits would be at age 62. Use your mySocialSecurity account to find out this information easily.
- Determine how much your benefits would be at the age you're thinking of claiming them
- Calculate the difference. If your benefits would be $1,050 at 62 but would be $1,500 per month at age 67, you would receive an extra $450 per month if you delayed.
- Calculate how much income you'd miss out on if you wait. In this case, it would be five years of $1,050 monthly payments, so you'd miss $63,000 in income
- Divide that amount by the extra you'd get per month. This will allow you to see how many months you'd have to receive these additional funds to break even. So divide $63,000 by $450 to see if you would break even in 140 months or 11.66 years.
You must do this math to find out what claiming age makes sense. This calculation, combined with increasing your income and working for at least 35 years, should help you to ensure you get the Social Security benefits you deserve.
