Social Security benefits are the basis for retirement planning for most retirees. Careful planning can double or even triple the Social Security benefits you end up receiving. There are several strategies you can use to get the highest Social Security benefits possible.
Job planning
Start planning for retirement long before you reach the last 5 or 10 years before retirement. Your best strategies for maximizing your Social Security benefits can’t wait until the last minute.
If your earned income is below the salary cap for the current year, you can try to raise your income above the cap by taking on overtime or even taking a second job. You will pay more in taxes, but you will more than offset that difference in your benefits down the road. Investment income does not count against the salary cap.
This strategy only works if you are below the salary cap and in good health. Check your job contract before you start, because some contracts have clauses against moonlighting or may restrict the other companies for which you can work.
Best time to retire and claim benefits
Do not retire before you have worked at least 35 years. Your Social Security retirement benefits are based on the average monthly income during the highest-paid 35 years of your working life, capped and adjusted for inflation. Every year of those 35 years when you did not work will be set at zero income. Thus, even if you have worked less than 35 years, your monthly income will still be averaged over 35 years.
If you are in good health or have good employment past the standard retirement age, consider waiting until you are 70 years old to claim Social Security. This delay will increase your benefits by 25% for the rest of your life.
Conversely, don’t claim Social Security before you reach the standard retirement age. Claiming benefits at age 62 will decrease your benefits by 25% for the rest of your life. However, if you have already taken this route, you may be able to repay all the benefits you have received and restart again at the older age and higher amount. The rules for this can be found on the Social Security website.
Marriage and Social Security benefits
If you are married and one spouse earns little or no money compared to the other spouse, you can maximize the spousal benefit by filing for Social Security early and then suspending benefits for the prime earner until a later date. Both spouses should file at the same time, as soon as both spouses are eligible for Social Security benefits.
In this way, the low-income spouse will receive the full spousal benefit immediately from the date of filing, and the higher income spouse will receive the higher Social Security benefit as a result of delaying. Otherwise, the low-income spouse will not receive the spousal benefit until the higher income spouse files.
Post-retirement earned income, investment income, and taxes
Your long-term Social Security benefit could potentially increase if you keep working after retirement, even if you have already filed for Social Security. Social Security benefits are calculated based on the highest-paid 35 years of your working life. This includes any years you work after filing for Social Security. Thus, if your earned income has been increasing greatly in the past few years and is likely to stay at that level, you will come out ahead even after the clawback.
This strategy only works if you have been below the salary cap during most of your working years. If you were at or above the salary cap in most years, your Social Security benefit won’t increase by much, or at all, when you continue to work after retirement.
Many “retirement” states do not charge income tax on Social Security benefits. Some do not charge income tax on any pension income. However, they will charge income tax on earned income and non-registered investment income normally. Pay close attention to the tax laws before you consider a retirement move, and plan your post-retirement employment accordingly.
Calculating Social Security benefits
You can easily obtain a Social Security retirement income estimate by using the Retirement Estimator on the Social Security website. This calculator uses real-time access to your earnings record to calculate your Social Security benefits, based on local current law. This is an excellent way to create “what if” retirement scenarios to see how you can adjust your planning to maximize your benefits.
In order to use the Retirement Estimator, you will be required to provide your name, your Social Security Number, your mother’s maiden name, and your place and date of birth. If you do not want to provide this information online, you cannot obtain exact information based on your real-time earnings record.
Instead, you can use a different calculator which does not access your earnings record. These benefit calculators will show a variety of estimates for all Social Security benefits, based on the amount of information you want to enter. These are also the calculators you should use if you are eligible for a pension but were not doing work which is covered by Social Security.
The Social Security benefit calculated by the Retirement Estimator and most other benefit calculators is the amount you will receive if you wait until your full retirement age of 66 or 67 to start receiving benefits. If you choose to start receiving benefits earlier or later, you will have to subtract or add the appropriate percentage to your Social Security benefits.