The average retired worker received approximately $1,674 in monthly benefits in September 2022 and this is expected to increase to approximately $1,680 next month. That works out to just over $20,000 a year, and some households could receive a lot more if they have multiple people claiming checks.
Yet many will not be able to cover all their retirement costs through Social Security alone. If you want to expand your personal savings as much as possible, you should try the following steps to increase your benefits.
1. Work for at least 35 years
The government looks at your average monthly income, adjusted for inflation, over your 35 highest-earning years when calculating your Social Security benefit. It’s possible to claim checks if you haven’t worked that long, but you’ll probably get less than you expect. Those who work less than 35 years before claiming have zero income years included in their calculations. Even one of these can reduce your benefit by several dollars.
However, there’s no reason to stop at 35 if you’re not ready to leave the workforce. Working longer is actually to your advantage if you earn more now than earlier in your career. After you pass the 35-year mark, the Social Security Administration begins replacing your earlier, lower-earning years with newer, higher-earning years in your benefit calculation. This leads to greater checks over time.
2. Seize every opportunity to increase your income today
Increasing your income today can generally increase your Social Security benefits in retirement, since your income is an important part of the Social Security benefits formula. The only people this tip may not help are those who already earn a high income. In 2022, you will only pay Social Security taxes on the first $147,000 you earn. This will increase to $160,200 in 2023. Anything above this amount will not affect your Social Security benefits in retirement.
But for most of us, taking steps like negotiating a higher salary, finding a better-paying job elsewhere, working overtime, or starting a side business can benefit our finances now and in retirement.
3. Apply for benefits at the right time
You qualify for Social Security at age 62, but if you want the benefits you earned based on your work history, you must defer claiming until your full retirement age (FRA). This is somewhere between 66 and 67 for today’s workers, depending on your year of birth.
Each month you claim benefits under this age, your check shrinks a little. Those who enlist immediately at age 62 will receive only 70% of their full benefits by check if their FRA is 67, or 75% if their FRA is 66.
Distribution deferrals increase your checks each month until you reach your maximum distribution at 70. That’s 124% of your full payout by check if your FRA is 67, or 132% if your FRA is 66.
But this doesn’t mean that postponing Social Security is always the right thing to do. It may lead to a greater lifetime benefit for those who live into their 80s or older, but it may shortfall those who don’t expect to live past 70. Not to mention, if you defer Social Security until age 70, you’ll have to pay all of your retirement costs out of pocket until then. This is not feasible for everyone.
While it’s impossible to predict how long you’ll live or what your finances will look like when you retire, it’s still a good idea to make a preliminary plan for when you’ll start claiming Social Security benefits. This will give you an idea of how much to expect from the program, helping you determine how much you need to save yourself for retirement.
If you need help, create a My Social Security account. There is a tool there that can show you what benefits you qualify for each month between 62 and 70. You can also see how changing your income can affect your checks.
Using this information, try to determine the claim age that will lead to your greatest lifetime benefit. You can do this by taking your monthly benefit for a given age and multiplying it by 12 to get your estimated annual benefit. Then multiply this by the number of years you expect to claim. For example, a $2,000 monthly benefit claimed for 20 years gives you a $480,000 lifetime benefit. Compare this to your estimated lifetime benefit for several other ages to see which will give you the most in total.
Or you can just wait
Those already claiming Social Security will see their checks increase by an average of $147 per month from January, thanks to the 8.7% cost of living adjustment (COLA) for 2023. Even if you don’t have Social Security yet When the government calculates your benefit in the future, it will likely still be greater than today’s $1,674 average because the program adjusts monthly check amounts over time to keep pace with inflation.
Don’t let that stop you from trying the steps above, though. They will make a bigger difference to your monthly checkups than just waiting for COLAs to increase the average benefit.