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Have a question? Ask our Retirement expert.

Have questions? Email Send your question to jbarnash@smartasset.com

Maximum Social Security Benefit

The government provides monetary compensation to populations who need it the most — namely, the retired, unemployed and disabled. In 2014, approximately 59 million Americans received Social Security benefits, for a grand total of $863 billion paid out. Calculating Social Security benefits can be complicated, as the allocations are split among age and income tiers. SmartAsset has assembled the best tips to maximize your Social Security payout.

Related: How Much Will I Get From Social Security?

Work For At Least 35 Years

The federal government calculates your final benefit amount based on your lifetime earnings, averaging your salary over the course of the 35 years when you made the most. Since salaries change over time, the SSA refers to the Average Wage Indexing Series — a calculation of wage inflation year-after-year — for its formula. Be forewarned: the SSA factors zeros into the equation for every year you are short of the 35-year mark. To make up for those years when you garnered low earnings, make a concerted effort to earn higher wages each other year. Check with your company’s Human Resources department if you think there’s a problem with your Social Security withholding.

Work Until Full Retirement Age

Want your maximum Social Security benefits? You’ll need to work until your full retirement age. Here lies a sticky situation as the determined age for full retirement continues to creep up. For a long time, you had to be 65 years old to receive full benefits, until U.S. Congress pushed through the Social Security Amendments of 1983 (H.R. 1900, Public Law 98-21). It decreed that, starting in 2000, the full retirement age would increase from 65 to 67, incrementally, over a 22-year period beginning in 2000. Congress reasoned that overall health, health care and life expectancy has increased over the decades. For example, the further life expectancy of a 65-year-old used to be nearly 14 years, compared to almost 20 years today. The SSA clearly indicates that, aside from extenuating circumstances, the earliest anyone can retire to start receiving Social Security is 62 years old, and they lose 30% of the benefits for that year. Each year leading up to the age of 66 the amount deducted is lowered, based on an individual’s year of birth.

Don’t Claim Until You’re 70 

Your benefits at age 62, 66 or 67 are not your maximum benefits. The longer you hold off from activating your Social Security benefits up to age 70, the greater your return. The maximum Social Security retirement benefit kicks in at age 70. Each year after full retirement, your payout increases by a certain percentage based on certain criteria. To maximize on this strategy, we recommend holding off until you are 70 years of age — payments will be the highest possible,  increasing by 8% each year. However, there are no addition increases after this age, so you are best off cashing out as soon as your birthday hits. The maximum Social Security benefit at age 70 is the maximum you’ll ever get.

Earn More at Your Place(s) of Employment

Since your Social Security disbursement is based on the amount of money you make over the course of 35 years, you will increase your entitlement by earning as high a salary as possible. Not only will this boost the final amount you receive, it will also give you a chance to eliminate low-wage earning years from the 35-year pool. If you can’t earn more at your first job, consider taking on a second job to increase your odds.

Watch How Much You Earn in the Years Preceding Full Retirement

The SSA has imposed earning limits for individuals who have entered early and full retirement. In 2013, an early retiree can make $15,120 in gross wages or net-self employment without penalty. Any overage will result in $1 deducted for every $2 earned above this amount. A full retiree can bring in $40,080 — in gross wages or net self-employment — prior to the month of your full retirement birthday without penalty. For every $3 earned above this amount, $1 will be deducted. These limits also affect the amounts family members can receive from your claim. Earnings you make after full retirement are not subject to any regulations.

Avoid Social Security Tax Traps

Maximum Social Security Benefit

Anywhere from 50% to 85% of your payout can be subject to federal taxation. When the sum of your adjusted gross income, nontaxable interest, and half of your Social Security benefits falls between $25,000 to $34,000 for single returns and $32,000 to $44,000 for join returns, income tax is imposed on up to 50% of the reimbursement. For anyone making $34,000 on a single return or $44,000 for a joint return, you can look forward to an income tax up to 85%. Reducing your taxable income to reduce the amount of taxes. This can be achieved by looking at all of your adjusted gross income (AGI) and evenly distributing your funds over the span of a few years, so there are no sudden increases or decreases.

Determine the Best Return for Your Spouse/Domestic Partner

Maximum Social Security Benefit

Married couples have two ways to go at Social Security. A person can claim his or her own benefits, or delay claiming them and reap half of the partner’s payout. To be eligible, a marriage must have lasted for a minimum of 10 years, but the arrangement need not be current.

This can be beneficial if one’s spouse was a higher earner, since the calculation for spousal benefits will be based on the spouse’s salary. Widows and widowers are also able to benefit from a spouse whose earnings were higher. Collecting half of your partner’s benefits is a great way to push back the date you claim for yourself.

As of April 30, 2016, spouses can no longer “file and suspend.” The file and suspend strategy allowed a filer to claim benefits and then immediately suspend them, letting the benefits grow until age 70 and enabling the spouse to collect spousal benefits in the meantime.

Now that file and suspend has been phased out, couples will have to decide who should file for benefits at 62 or at Full Retirement Age and who should delay claiming until age 70 to give his/her benefits time to grow. In general, it makes sense for the higher-earning spouse to be the one to delay claiming.

Let Your Family in on Your Social Security Benefits

Family members can also receive an allocation from your Social Security. Each individual needs to fit certain parameters to receive these benefits. Biological, step- or adopted minor children can receive payments that amount to one-half of your full allocation on a monthly basis. There is also a limit to the amount your family members can claim based on a worker’s earnings record, also known as a family benefit maximum (FBM). This maximum only applies when there are multiple-payment recipients on one record.

Some Final Tips

First and foremost, make sure that your employment and funds paid into your account check out with the SSA. The U.S. Social Security Administration (SSA) encourages workers aged 18 years and older to create an account where they can monitor their Social Security Statement. The SSA is phasing out all check payments and transitioning to an all-electronic payment system. This means all recipients are encouraged to sign up for some form of e-payment system.

You should be aware that there are health risks involved in optimizing your Social Security payout. For one thing, a delay in retirement can increase the likelihood that you will compromise your health. For another, relying on half of a spouse’s benefits can be good, but it puts you in a dicey position where you are dependent on the other person’s wealth.

Related Article: Don’t Forget About Life Expectancy When Planning for Retirement

Photo credit: © iStock/Courtney Keating, © iStock/bowie15, © iStock/g-stockstudio

Dennis Sebayan Dennis Sebayan is a freelance writer and business analyst. His expertise is in home buying, credit cards and retirement. He lives in Brooklyn. Dennis has a degree in English from the State University of New York at Buffalo.
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