Once you know how the government calculates Social Security, it’s easy to spot ways to maximize your checks.
Social Security is about a decade away from insolvency, and that’s scary for many workers to consider. While it’s inaccurate to say young workers won’t get any money from the program, it’s possible they may get less than what retirees are receiving today.
It’s frustrating, especially for those who aren’t able to save as much as they’d like to for retirement on their own. However, while you cannot control what happens to Social Security in the future, there are three key steps you can take to ensure you get as much from the program as possible.
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1. Work at least 35 years
The Social Security Administration looks at your average monthly income, adjusted for inflation, over your 35 highest-earning years when calculating your checks. This is the first step in the Social Security benefit calculation, and the result is known as your average indexed monthly earnings (AIME).
It is possible to be eligible for Social Security with a work history as short as 10 (not necessarily consecutive) years. But if you hope to maximize your benefits, it’s important to remain in the workforce for at least 35 years before applying if you’re able to do so.
When you apply for benefits with a shorter work history, the government includes zero-income years in your benefit calculation. That shrinks your checks, sometimes considerably. Consider someone who earns $50,000, adjusted for inflation, for 35 years. Their AIME would be $4,167 per month. But if we subtract just one year of work history, their AIME drops to $4,048 per month. That’s all because of one zero-income year.
2. Time your Social Security application carefully
When you apply for Social Security also affects the size of your checks. You become eligible for your standard Social Security benefit at your full retirement age (FRA). This is somewhere between 66 and 67 for today’s workers.
You can apply as early as 62, but signing up before reaching FRA shrinks your checks by up to 30%. On the other hand, delaying Social Security benefits past your FRA (up to age 70) can boost your checks by as much as 32%.
At first glance, delaying benefits may seem like the obvious move, but it means settling for fewer checks over your lifetime. Not everyone can afford to do this. For those with serious health issues, delaying their Social Security claim could actually result in them getting a smaller lifetime benefit than claiming early.
Ultimately, you have to make the right decision based on your finances and life expectancy. If it helps, you can create a my Social Security account and use the benefit estimator tool there to see your estimated Social Security check at every possible claiming age between 62 and 70. Choose a few you’re considering and multiply the monthly benefit by the number of months you expect to claim checks. Choose the age that gives you the largest lifetime benefit possible without compromising your financial security.
3. Coordinate with your spouse if you’re married
Married people have to decide when they plan to claim Social Security based on their income and life expectancy, as outlined above. They also have to weigh how their choice will affect their spouse.
Married people who have worked long enough to qualify for retirement benefits on their own are dually eligible for Social Security. That means they could either claim their own retirement benefit or a spousal benefit — worth up to one-half of their partner’s benefit at their FRA. The Social Security Administration automatically gives you the larger of the two, but you cannot claim a spousal benefit if your partner hasn’t signed up to receive their own benefits yet.
When both spouses have earned similar amounts over their careers, they’ll probably both wind up with their own retirement benefits. Maximizing their lifetime benefits usually involves delaying each as long as possible, unless a short life expectancy or financial constraints prohibit this.
When one person has significantly outearned the other, it sometimes makes more sense for the lower earner to claim early. The income may allow the higher earner to delay their claim so they can get larger checks. When the higher earner eventually applies, the lower earner can switch to a spousal benefit if it’s worth more than what they’re already getting.
It helps to have some idea of when each person hopes to claim Social Security. But be prepared to adapt your strategy over time. Keep communicating with your partner and stay up to date about any major changes to the program that could affect your decision.