(Sam Swenson, CFA, CPA)
When it comes to locking in a higher Social Security check, learning the basic rules is a productive first step. If you want to have a higher spending floor in retirement, earning more and working longer are the key behaviors to focus on.
Only a small minority of workers achieve the feat of locking in the maximum Social Security payout of $4,194 per month. Perhaps a more realistic goal is to focus on the factors you can immediately control.
Below, we’ll review three ways to notch a higher monthly Social Security benefit in retirement.
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1. Earn tomorrow
The Social Security system works much like an insurance company: You pay “premiums” in the form of payroll tax during your working career and collect a benefit amount in retirement corresponding to the amount you paid in. The more you pay into the system, the more you can expect to receive when you file for benefits at retirement. Simple.
The Social Security Administration (SSA) taxes employee earnings at a rate of 6.2%, up to a maximum wage base of $147,000 in 2022 (soon to rise to $160,200 in 2023). Any amount you earn up to this amount is taxed accordingly, so the more you earn, the more you’ll pay into the system. To the extent you can earn more, you’ll be rewarded with a higher monthly check in retirement.
2. Work longer
The SSA considers your entire work history when it determines your primary insurance amount (PIA). More specifically, it considers your 35 highest-earning years. If you log zero-income years at any point over your working career, those zeros will pull your calculation down. If you don’t yet have 35 years of work to show, you might think about working until you do. This ensures a more robust income stream when the time comes to collect benefits.
To see where you currently stand, it’s a smart idea to log into your Social Security account through the Social Security Administration website to see if you have any zero-income years as part of your primary insurance calculation. If you do, depending on how tolerable your current work situation is, it can make a lot of sense to stay in your job a bit longer to lock in a higher spending floor in your senior years.
3. Spousal benefits
It might seem obvious, but coordinating benefits with your spouse is an effective way to get more out of Social Security. If you were the lower-earning spouse over the course of your career or the stay-at-home spouse, you’d be eligible to collect a payment of up to 50% of your spouse’s benefits — assuming your spouse has started receiving retirement benefits.
If you qualify for Social Security benefits based on your own earnings record, you can start collecting them as early as 62. Once your spouse begins taking monthly retirement benefits, you’ll get a potential boost from spousal benefits if they exceed your own retirement benefit .
You’ll only get the full 50% if you’ve reached your full retirement age, which for those currently in their 60s ranges from 66 to 67. Interestingly, spousal benefits also apply to ex-spouses you were married for at least 10 years.
Plan your Social Security strategy
Much of what determines how much you’ll receive in retirement happens long before you file your claim. Earning more and working longer are the two keys to receiving more in benefit payments. Coordinating with your spouse is another way to maximize total dollars received.
Take time to consider all factors — both financial and non-financial — and develop a Social Security strategy with your family. If you’re having trouble, don’t hesitate to reach out to a qualified financial planner for objective advice.
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