Five Ways To Maximize Social Security Benefits
Social Security provides a guaranteed fixed income to many retirees, helping pad their retirement savings and income. But did you know there are strategies you can use to max out your monthly benefit? According to the Social Security Administration, the average monthly Social Security benefit payment is $1,536.94. The maximum monthly payment as of March 2022 stands at $4,194, which is 2.7 times more than the average monthly payment.
Given the rising cost of housing, goods, healthcare, services, and many other essentials, the more money you have during your retirement years, the easier you can rest, knowing that you likely wont run out of money in retirement and can live life how you want in your golden years. This article covers five ways you can maximize your Social Security benefits.
What Is The Cost Of Living Adjustment
Since 1975, Social Security benefits have been adjusted automatically each year, based on fluctuations in inflation, as determined by the Consumer Price Index For Urban Wage Earners And Clerical Workers. The Social Security Administration compares the average CPI-W in the three months of the third quarter of the current year to the same timeframe in the year prior. “The COLA increase is a valuable feature that keeps retirees from truly being tied to a ‘fixed income’ when managing expenses,” Rob Williams, managing director of financial planning at Charles Schwab, told CNET. The benefit increase is based on third-quarter changes to the Department of Labor Statistics’ Consumer Price Index. The CPI was 8.5% in July and dipped down to 8.3% in August before hitting 8.2% in September.
Select Looks At Four Online Tools That Can Help People Figure Out When They Should Collect Benefits
Choosing when to collect your Social Security benefits can have a large impact on your standard of living in retirement, especially if you didn’t save enough on your own. According to the Social Security Administration, Social Security benefits represent 30% of retirement income for the elderly. Deciding when to collect is a complicated task you’ll have to consider factors like your spouse, your other sources of retirement income, your health status and the cost of Medicare deductions.
Online tools, however, exist to make that task a little bit easier. There are a number of free and paid services out there to help people figure out when to collect their benefits.
“Because SSA maintains a neutral stance on the claiming decision, many other government, academic, nonprofit, and private groups have developed Social Security benefit calculators and tools for analyzing retirement finances to provide clarity on individuals’ retirement decisions,” states a 2016 report by the Social Security Administration. “The calculators may be very informative for older workers who have an established earnings record, but less so for younger workers whose future earnings may be unpredictable.”
Below, Select highlights four online Social Security free and fee-based tools that people can use to figure out when to collect benefits.
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Will I Get Social Security When I Retire
- According to the Social Security Administration website, social security benefits are projected to be fully payable until 2035 .
- Social Security is politically sensitive. Older voters those receiving Social Security benefits have very high voter turnout rates. Politicians are unlikely to reduce benefits for those receiving or about to receive. Changes are more likely to affect future recipients.
- At some point, inaction will be too risky. In 1983, Social Security was thought to be months from running a deficit. Democrats and Republicans came together to make changes that could sustain the system for several more decades. In 2015 the Bipartisan Budget Act included a section to close Social Security loopholes. Demographic trends continue to work against the systems finances, and further changes will be necessary.
If you are retiring in the next decade, many experts think you can plan to receive your full Social Security benefit payments. Although tax and benefit changes are most likely to affect younger workers, you still may wish to use conservative assumptions in planning how to use future Social Security benefits.
A solution that creates a financially sustainable system is likely because of the potentially catastrophic impact of doing nothing. The programs scope, the number of people who rely on it as their main source of income, and the range of options for addressing financial shortfalls should eventually spur action to make improvements.
How To Apply For Social Security
Generally speaking, you can claim your social security retirement benefit between the ages of 62 and 70. The earlier you take your benefit, the lower it will be. The longer you wait to claim your benefit, the higher it will be.
The decision is important because, with limited exceptions, it cannot be changed once the benefit begins. Workers social security retirement benefit is based on their full retirement age or FRA. Claiming early will allow your benefit to begin earlier but will result in reduced benefits.
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Maximize Your Household Benefits
If you have a spouse or minor children, you should consider how your claiming strategy affects them. This might mean using a different benefit strategy than the one youd use to maximize your own benefit payment.
How else might you maximize your households Social Security benefits? The oft-heard advice is to postpone claiming until age 70 if you can afford to. But that may not be the best option if youre in your 60s and still have minor children at homenot uncommon in blended families. In this scenario, you might receive more benefits in the long run by claiming at a younger age so you can receive dependent benefits.
The dependent child benefit is equal to half of the claiming parents full retirement benefit, even if the parent claims early. The younger spouse may also be eligible for a spousal benefit. These additional benefits may offset the lower benefit you receive by filing early.
Factors that affect this decision include:
- The number of children who are in the household
- How long it will be until they turn 18
- The amount of your spouses benefit
- The age gap between the spouses
Your claiming decision affects family members. If you voluntarily suspend your own benefits, no one else can receive Social Security benefits based on your earnings record.
Extend Your Career Once Your Earnings Have Peaked
Even if you reach the end of your career having worked 35 years, it could still pay to plug away at your job a bit longer. If your salary is at its highest once you’re ready to retire, working a few more years will mean replacing years of lower earnings with higher ones. The result? A higher benefit to look forward to.
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What If I Delay Taking My Benefits
If you retire sometime between your full retirement age and age 70, you typically earn a “delayed retirement” credit for your own benefits . For example, say you were born in 1960, and your full retirement age is 67. If you start your benefits at age 69, you would receive a credit of 8% per year multiplied by two . This means your benefit would be 16% higher than the amount you would have received at age 67.
A Guide On Taking Social Security
Deciding when to take Social Security depends heavily on your circumstances. You can start taking it as early as age 62 , or you can wait until you’ve reached full retirement age or age 70 based on your work history. While there’s no “correct” claiming age for everybody, the rule of thumb is that if you can afford to wait, delaying Social Security can pay off over a long retirement. Here are some guidelines to consider.
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Social Security’s Record Increase: Here’s How Much Your Check Will Be In 2023
Next year’s cost-of-living adjustment for Social Security benefits will be the largest since 1981.
Dan Avery
Writer
Dan is a writer on CNET’s How-To team. His byline has appeared in Newsweek, NBC News, The New York Times, Architectural Digest, The Daily Mail and elsewhere. He is a crossword junkie and is interested in the intersection of tech and marginalized communities.
Next year’s Social Security cost-of-living adjustment, or COLA, will increase benefits 8.7% above this year — the largest bump since 1981, when they rose by 11.2%. The sizable figure represents the agency’s efforts to combat the ongoing impact of inflation on seniors.
“A COLA of 8.7% is extremely rare and would be the highest ever received by most Social Security beneficiaries alive today,” Senior Citizens League policy analyst Mary Johnson said in a statement earlier this year. In fact, the COLA has only risen above 7% five times since 1975, when it was introduced. The 2022 COLA, in comparison, was only 5.9%.
The cost-of-living-adjustment is determined annually by shifts in the Consumer Price Index, which charts year-over-year price fluctuations for goods and services in the third quarter.Read on to learn all about 2023 Social Security benefits, including how much more you’ll be getting and when the increase will appear in your check.
For more on Social Security, learn how to access your payments online and how benefits are calculated.
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Theres A Social Security Spousal Benefit
Marriage is rewarded when it comes to Social Security. One spouse can take whats called a spousal benefit, worth up to 50% of the other spouses Social Security benefit. For example, if your monthly Social Security benefit is worth $2,000 but your spouses own benefit is only worth $500, your spouse can collect a spousal benefit worth $1,000 bringing in $500 more in income per month.
Just as the benefit based on your own work history is reduced if you claim it early, the same is true for a spousal benefit. That 50% figure is the maximum amount that only a spouse who is at least full retirement age is eligible for. Taking the spousal benefit early at, say, age 62, reduces the amount to as little as 32.5% of the higher earners benefit. If you take your own benefit early and then later switch to a spousal benefit, your spousal benefit will still be reduced.
When You Start Collecting Matters
Each month you delay collecting Social Security after age 62, your benefit risesclimbing by a total of at least 76% by age 70.
Less known is that your benefit rises more some years than others. For example, if youre born in 1960 or later, your benefit rises by 6.67% if you delay from age 63 to 64, but by 8.34% if you delay from age 64 to age 65, according to Reichenstein.
Its the same story after you hit full retirement age at 67. By waiting, your full retirement benefit will rise by 8% a year, but the growth isnt compounded.
Suppose youre entitled to $1,000 at full retirement age. If you wait a year to start collecting it, your monthly benefit will rise $80, an 8% increase from $1,000. If you wait another year, it will rise another $80, but now that amounts to only a 7.4% increase on your new base of $1,080. If you wait yet another year to age 70, the additional $80 is a 6.9% increase on your base of $1,160.
Another anomaly: If you start benefits during the year after full retirement age, Social Security waits until the next calendar year to increase your benefit, notes economist Laurence Kotlikoff, who sells Social Security optimization software.
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Ways To Increase Social Security Benefits
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Knowing how to increase Social Security benefits is important, since those checks will likely be a major source of your income in retirement.
Unfortunately, many people dont understand how Social Security really works. They claim too early, miss out on important benefits and fail to use strategies that could boost their lifetime income. Their mistakes can cost them as much as $250,000, researchers have estimated.
Here are eight ways to increase your Social Security benefits.
Theres An Annual Social Security Cost
One of the best features of Social Security benefits is that the government adjusts the benefits each year based on inflation. This is called a cost-of-living adjustment, or COLA, and helps your payments keep up with increasing living expenses. The Social Security COLA is significant. Its the equivalent of buying inflation protection on a private annuity, which can get expensive.
Because the COLA is calculated based on changes in a federal consumer price index, the size of the COLA depends largely on broad inflation levels determined by the government . In 2023, Social Security beneficiaries will likely see a 9.7% COLA in their monthly Social Security benefits, the biggest increase since 1981. The COLA for 2023 will be announced on October 13.
Heres what COLAs have been in other recent years:
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Social Security Survivor Benefits
In addition to claiming your or your spouses record while living, a widow can also claim the deceased spouses record. A survivors benefit can be claimed by the widow or widower as early as age 60 but on a reduced basis. Much like a spousal benefit, the survivor benefit can be reduced if claimed early but cannot be increased by the survivor deferring past their full retirement age or FRA.
Example: Lets assume that your FRA is age 66. The survivor benefit available to you at your FRA would be 100% of what your deceased spouse received if they claimed their benefit. In other words, when one spouse delays claiming their benefit until after their FRA, they not only receive a higher benefit for themselves but that higher benefit will be available to their surviving spouse if its higher than what the surviving spouse is then receiving.
Delay Claiming Social Security Benefits
The simplest way to increase your monthly payments is to delay claiming Social Security benefits. The Social Security Agency allows all Americans to start benefits at the early retirement age of 62, but doing so can reduce your monthly payment paycheck.
If you choose to begin receiving Social Security early, for each month there is between when you start and your full retirement age you lose about half a percentage point of the total value you would have earned if youâd waited.
You could miss out on up to 30% of the monthly payment youâd be entitled to at your full retirement age by starting early. If you would receive a monthly benefit of $1,500 at your full retirement age of 67, for instance, starting benefits early at age 62 would reduce that amount to $1,050.
Waiting to start Social Security benefits until after your full retirement age can boost your monthly benefit. According to Eric D. Brotman, CEO of BFG Financial Advisors, there is an 8% annual increase in benefits due for each year you wait from full retirement age through 70.
That means the $1,500 benefit at age 67 could increase by 24% to $1,860 per month if you wait until 70âthatâs the age at which you must begin payments. Just donât wait until after age 70 to start payments.
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What Is The Future Of Social Security
As of June 2022, the Social Security Trust Fund is projected to have enough resources to cover all promised benefits until 2035 when, absent a change from Congress, benefits would need to be cut for all current and future beneficiaries to about 80% of scheduled benefits.2 Over the longer term, changes to the full retirement age or means testingâwhich could reduce or eliminate benefits based on your other income sourcesâmay also be considered.
If you’re skeptical about the future of Social Security or wary of potential changes, you may be tempted to start benefits early, assuming that it’s better to have something than nothing. Regardless of your situation, if you are concerned about the future prospects for Social Security, then that’s a good reason to save moreâand earlierâfor your retirement.
Before You Make Your Decision
There are advantages and disadvantages to taking your benefit before your full retirement age. The advantage is that you collect benefits for a longer period of time. The disadvantage is your benefit will be reduced. Each person’s situation is different. It is important to remember:
- If you delay your benefits until after full retirement age, you will be eligible for delayed retirement credits that would increase your monthly benefit.
- That there are other things to consider when making the decision about when to begin receiving your retirement benefits.
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