We’re an aging population here in the U.S. That means that retirement is in focus and specifically how retirees can optimize their retirement income. One big area where people don’t get it right is with Social Security. Overwhelmingly, people claim Social Security at 62, which is too early for a majority of people. Most people I talk to know that waiting to file is a great way to increase their Social Security benefits. But when I ask them about other steps to take to increase their benefit amount…crickets. There are many ways to get more out of Social Security, as outlined in the below list. I will keep this list updated and add to it from time to time. Please comment below if you know additional ways to get more out of Social Security.
1) Wait to File
The biggest and most obvious way to get more out of Social Security is simply to wait. Sit on your hands and try not to call the Social Security office for a while. This is not always the best move but it is for most folks. Over 40% of people file Social Security as soon as they can – at 62. But every year you wait gives you an 8% increase in benefits. 8% is a really good deal but remember, you don’t get the money sooner if you wait. And money received today is worth more than money received a year or more from now. There’s some balance you have to consider here and multiple factors like your health, dependent situations, spousal situation, etc.
2) Make More Money NOW
Social Security benefits are calculated on your highest 35 years of earnings. The SSA uses your earnings history to come up with your average indexed monthly earnings (AIME). To get your AIME, add up the highest 35 years of your income (as indexed for inflation) and divide by 420. Then apply the bend-point formula to the AIME to get to your primary insurance amount (PIA), which is the amount you’re receive at full retirement age (FRA).
If you don’t have 35 years of high income earnings, then consider increasing your income right now. Negotiate a raise with your boss, work more, consult on the side, start an online business. The objective here is to make more earned income. This will not only increase your Social Security benefit amount when you do file, but it will also give you more money in your pocket today.
3) Use a Social Security Comparison Spreadsheet
I’ve developed this spreadsheet for a simple way to compare your Social Security benefit by year at different claimant ages. Click on File – Save a Copy to pull down to your own computer and make edits. First step in using this spreadsheet is to figure out your benefit amount at 62, FRA, and 70. You can get this right from the Social Security website or use an online calculator.
As you can see above, this spreadsheet shows you your annual benefit amount using a 3% cost-of-living adjustment which can be adjusted. It also gives you the net present value of your lifetime benefit amount using a discount rate of money of 2.5%. You can see how to get more out of Social Security by year or over your lifetime.
4) Use Software
There’s a Social Security software that shows you exactly how to optimize your benefits given your specific situation. Maximize my Social Security is $40 to buy which means it’s a no-brainer. It will payoff the day you buy with peace of mind, not to mention the hundreds of thousands more you could get over your lifetime. You can see how a couple used this software to get more over $260,000 over their lifetime.
5) Know How Your State Taxes Social Security
I made a map of the U.S. that shows you how your state taxes Social Security. Most states don’t tax Social Security income. 13 states tax Social Security income to some extent. I have more information on state taxes in #4 of this article. With a claiming strategy, you can get more out of Social Security by paying less in state tax.
6) Know Your Full Retirement Age
Those claiming Social Security in 2018 will be between 62 and 70. The year in which you were born determines how your benefits are calculated. The Full Retirement Age chart is listed below for reference. Anyone born prior to 1955 has a Full Retirement Age of 66. Then, the Full Retirement Age increases by 2 months until 1960, when it levels off at age 67. Get the most from Social Security by not filing before your FRA.
7) Plan, Plan, Plan
Plans are nothing; planning is everything. ~ Dwight D. Eisenhower
It makes sense to plan for Social Security, even if you’re years away from claiming. Social Security is complex and can be intimidating for folks getting ready to file. By knowing a few things about Social Security, you’ll be prepared to file and to make the right decision. Knowing things like how Social Security is calculated, how it’s taxed, how it increases each year, and what the maximum monthly payment is will all help you get the most out of Social Security. You can get up to $3,698 in monthly benefits if you wait until you’re 70 and had the max earnings throughout your lifetime.
8) Hire A Financial Planner
Nobody likes paying for people to tell them to save more and spend less; that’s what your conscience does for free. But when it comes to planning for retirement, it makes sense to bounce ideas off of a good fee-only financial planner. Fee-only financial planners will give you objective advice without trying to sell you things you don’t need. It may seem odd to pay someone money to save money or get you more money. It’s worth it even if you have to pay someone $500 for a consultation and a retirement plan. You’ll be in retirement for 30+ years and could stand to make $100’s of thousands more by making good financial planning decisions. Retirement income is one giant math problem; make sure you solve yours.
9) Use Online Calculators
There are 6 main online calculators that are worth your time. While they won’t give you the same level of detail as you will with a software, calculators are free and can give you a good idea of how much money you’ll receive. From there you may be able to figure out what works best for you. The various calculators are all a bit different. Some work really well to compare how much you’ll receive at various ages. Some are better at giving you a quick estimate of your Social Security. I like the Consumer Financial Protection Bureau’s Planning for Retirement calculator.
10) Know How Working in Retirement Affects Your Benefit Amount
The SSA will withhold $1 for every $2 you receive in earned income beyond the lower threshold from age 62 to your FRA. Many folks think that they withhold this and you’ll never receive it again. That’s incorrect. The SSA withholds the money and then adds it back to your monthly benefit check when you hit the FRA.
Let’s say you make $37,040 in 2018 and you told the SSA that you plan to make this amount ahead of time when you filed. They will withhold the first $10,000 in Social Security payments during the year ($20,000 made above the $17,040 limit divided by 2), then pay you the regular payment amount for the rest of the year. If your regular payment amount at age 62 is $2,000 per month, the SSA will withhold your payment from January – May, then start paying you $2,000 in June until the end of the year.
11) Know How Much You’ll Get Back
The top 2 income quintiles don’t get as much back in Social Security compared to the bottom 3 quintiles. This is due to the bend-point formula (the numbers in the chart below are just an illustration – not actual). The bend-point formula lowers the amount the benefit amount based on your AIME. It lowers the % of benefits as your income increases. Social Security was designed to be more beneficial to lower-income Americans.
12) Check Your SSA Statement for Errors
Remember how we used to get statements every year that gave us a breakdown of our benefits? Thanks to cost cutting that is no longer. Now, statements go out when you’re 25, 30, 35, 40, 45, 50, 55, and 60 and over. Go through the numbers and make sure they look correct. Make sure that if you have any military service of have worked overseas, you make sure be extra thorough. The SSA is pretty accurate but they’re still a government bureaucracy so errors can occur.
13) File When Ready
Once you’ve figured out how to get more out of Social Security, you can file online, by phone (1-800-772-1213), or in person at your local office. Make sure that the employee at the Social Security office completes your application accurately so that you get the most. Do you have a spouse that needs to also file under your benefits? Is the amount they tell you in-line with the amount given by the SSA website or other estimates? Make sure you’re on top of this step. You don’t want errors to occur in the final phase of filing.