In 2019, approximately 64 million Americans are expected to receive more than $1 trillion in Social Security benefits – primarily retirement benefits. Calculating Social Security retirement benefits can be complicated, as it depends on factors including your average lifetime earnings and the age when you first start taking benefits. If you want to maximize your own payout, here’s what you need to know.
What Is the Maximum Social Security Benefit?
Before you can strategize how to maximize your benefits, you need to know what the ceiling is. In 2019, the maximum Social Security benefit is $2,861 each month. There’s no way to earn more than that amount, but there are many factors that could result in you earning less. We’ll go through each of these factors in turn and discuss how you can maximize your benefit amount with each of them.
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 Social Security Administration (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. So even though you only need to work for a decade to qualify for benefits, it’s crucial to put in at least 35 years to avoid bringing down your average. It’s also a good idea to check with your company’s Human Resources department if you think there’s a problem with your Social Security withholding. That way, you can be sure that your working years are actually properly paying you into the system.
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.
…Or Go All the Way and Work Until 70
Your benefits at age 62, 66 or 67 are not your maximum benefits. The longer you hold off from activating your Social Security 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, you’ll want to hold off until you are 70 years of age. Payments will be the highest possible then, 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.
Of course, working until 70 isn’t for everyone, so there’s wronging with claiming before 70 if you stop work earlier and need the benefits. It’s also not a sure thing that waiting until 70 maximizes your lifetime benefit; if you pass away in your 70s, then waiting that long might mean that you received less total benefits than if you’d claimed it sooner. So consider your life expectancy as you make this decision.
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.
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. Those limits, and the impact on your earnings, depend on how close you are to your full retirement age.
In 2019, an early retiree can make $17,640 in gross wages or net self employment earnings without penalty. Any overage will result in $1 deducted for every $2 earned above this amount. Once you reach the year your reach full retirement age, you can bring in $46,920 prior to the month of your full retirement birthday without penalty. For every $3 earned above this amount, the SSA will deduct $1. These limits also affect the amounts family members can receive from your claim.
Once you’ve reached full retirement age, earnings do not impact your benefits.
Avoid Social Security Tax Traps
Anywhere from 50% to 85% of your payout can be subject to federal taxation. When your combined income (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 joint returns, income tax is imposed on up to 50% of the reimbursement.
For single filers with more than $34,000 in combined income and joint filers with more than $44,000, you can look forward to an income tax up to 85%. If you’re looking to avoid this, try 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
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 be a minimum of 10 years old, but the arrangement need not be current.
This can be beneficial if one’s spouse was a higher earner. That’s because 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. This lets the benefits grow until age 70 and enabling the spouse to collect spousal benefits in the meantime.
Now that file and suspend has phased out, couples have a choice. They’ll 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. This is also known as a family benefit maximum (FBM). This maximum only applies when there are multiple-payment recipients on one record.
Tips For Navigating Social Security
- 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.
- If you need any help, many financial advisors offer Social Security planning. A matching tool like SmartAsset’s can help you find a person to work with to meet your needs. First you’ll answer a series of questions about your situation and goals. Then the program will narrow down your options from thousands of advisors to three registered investment advisors who suit your needs. This allows you to find a good fit while the program does much of the hard work for you.
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