For many, Social Security is their only source of income in retirement. That's why it’s very important for these retirees to maximize their Social Security benefits.
Believe it or not:
There are some pretty simple ways you can increase your Social Security payout.
Sadly, just because they’re easy doesn’t mean they’re fun.
Here are a handful of ways you can potentially increase your Social Security payout.
1. Work More Than 35 Years
Your Social Security benefit is calculated based on 35 years of earnings.
If you started working at 18, you have at least 47 or more working years until you reach full Social Security age depending on your date of birth.
You could technically stop working after 35 years. This would leave you with the maximum number of years worked for the calculations.
Chances are you probably didn’t earn as much at the beginning of your career as you will at the end of your career.
If you keep working beyond the initial 35 years, the lowest income years are replaced with higher income years.
Therefore, working longer could maximize your Social Security benefit.
This only works if you’re replacing low-income years with high-income years.
2. Boost Earnings
Increasing your earnings record is a great way to boost your Social Security benefit.
The more you pay into the Social Security system, the more you get out.
Maximizing your income over the highest 35 years can be done in many ways, including:
- ask for raises regularly
- earn income on the side
- job hop to get promotions and bigger raises
The key in all of these cases is you must be paying more Social Security taxes.
If you make money on the side but don’t pay the self-employment tax, your benefits won’t go up.
Similarly, if your wage income already exceeds the maximum wages that Social Security taxes are paid on, you won’t get any additional benefit.
In 2019, that amount is $132,900.
3. Delay Taking Social Security Benefits
Technically, you can start claiming Social Security benefits as early as age 62.
However, it pays to wait.
Taking Social Security early, before full retirement age, reduces your benefits.
It can reduce your benefits by as much as 30%.
Your monthly benefit is reduced by 5/9ths of one percent for each month you retire before full retirement age for up to 36 months.
Each month beyond 36 months that you retire early further reduces your benefit by 5/12ths of one percent.
Once you have reached full retirement age, which varies from age 65 to age 67, you can delay benefits even further.
For each year you delay benefits after full retirement age, your benefit increases by 8% per year until you reach age 70.
4. Consider Claiming Spousal Benefit Payments
Social Security is extremely complex. One of these complexities is the ability to claim Social Security benefits based on your spouse's Social Security record.
You can get 50% of your spouse’s or ex-spouse’s benefits at their full retirement age.
To claim an ex-spouse’s benefit, you must have been married at least 10 years and have not remarried before age 60.
5. Minimize Income in Early Retirement
If you’ve already claimed your benefits before full retirement age, you need to be careful earning other income. Doing so can reduce your Social Security benefit payment.
If you’re under full retirement age for the full year, the limit on other income is $17,640. For each dollar you earn above that, $0.50 is deducted from your benefit payments.
Things change in the year you reach full retirement age.
During that year, the limit on earnings is $46,920. For every dollar you earn above that, your benefits are reduced by $0.33.
Thankfully, earnings are only counted in the months before the month you reach full retirement age.
6. Claim Survivor’s Benefits
If your spouse has died, you may qualify for Social Security survivor’s benefits. This may result in higher benefit payments than your own Social Security benefits.
You must have been married to your spouse for at least nine months at the time of death.
The survivor’s benefit depends on a number of factors. That said, you could receive up to 100% of your deceased spouse’s benefit amount if you claim in certain ways.
Survivor’s benefits can be claimed as early as age 60, but you’ll only receive 70% of the benefit at that time. You can receive 100% of the benefit at age 66.
If you and your spouse are already both claiming Social Security benefits, things are slightly different.
When your spouse dies, you can receive either your benefit or your spouse’s, whichever is higher.
You do not receive both.
7. Reduce Taxes on Your Social Security Income
While this won’t technically increase your Social Security benefits payout, it will help it go further.
If the only income you receive is Social Security income, chances are you aren’t going to have to pay federal income tax on that income.
Receiving additional income above your Social Security income could make some of your Social Security benefit income taxable.
If you’re an individual, you may have to pay income tax on up to half of your Social Security benefits if your income is between $25,000 and $34,000. If your income is more than $34,000, you may have to pay income tax on up to 85% of your benefits.
Those filed married filing jointly have different thresholds. If your joint income is between $32,000 and $44,000, half of your benefits may be subject to tax. If your joint income is above $44,000, up to 85% of your benefits are subject to tax.
Ideally, you wouldn’t pay any taxes on your Social Security income. But how can you make that happen if your income is higher than the limits for tax-free Social Security benefits?
Shift your retirement income
Depending on your situation, it might be possible with tax planning.
You can work to shift your income between tax years.
You’d make sure to keep your income low in some years to avoid paying taxes on your Social Security benefits.
This may require not selling any investments that result in taxable income and avoiding investments that pay interest or dividends on a regular basis.
Then, you can sell investments in other years that you know you’ll earn a higher income. This may require paying taxes on your Social Security benefits, but at least you could avoid the taxes in some years.
Plan your taxes
Unfortunately, tax planning like this can get very complex. It may not be worth it, either.
If you end up paying more taxes overall by enacting a strategy like this, it doesn’t make sense. This can easily happen.
As your income increases in the years you do pay taxes, you might become subject to higher marginal income tax rates.
These higher rates may result in paying more taxes on your income in one year than you’d pay if you had spread out the income over two years and paid taxes on your Social Security benefits.
You could consult with a CPA to see what tax planning opportunities you may have.
However, CPAs generally charge for this advice. If the advice would cost more than you could potentially save in taxes, it doesn’t make much sense.
If You’re Already In Retirement
Even if you’re already in retirement, there are ways you can increase your Social Security retirement benefits.
Withdraw your claim
First, consider withdrawing your claim if you’ve applied within the last 12 months. To do this, you have to fill out Social Security Administration (SSA) Form 521.
Unfortunately, you’ll also have to pay back all of the Social Security payments you’ve received. This includes benefits withheld for taxes or to pay for Medicare premiums.
But why would you want to do this?
Withdrawing your claim makes it appear like you never applied in the first place. This means you can continue allowing your benefits to grow until you reach age 70.
Suspend your benefits
If you can’t withdraw your application, suspending your benefits might help.
While your benefits are suspended, you can still earn delayed retirement credits.
At full retirement age, delaying or suspending your benefits each year will result in an increase of 8% per year until age 70.
Go back to work
Finally, you can always return to work. Your benefit is recalculated each year even after you start taking benefits.
Since your benefits are calculated based on your 35 highest earning years, you can still replace a low earning year with a high earning year to increase your payout.
You should be very careful if choosing this path. Those younger than full retirement age might get reduced benefit payments if earnings are too high. You might have to pay income tax on your benefits if you earn too much income, as well.
The long term benefits of replacing a low earning year with a high earning year may be worth the costs.
There are plenty of ways to increase your Social Security benefit payout, even after you’ve started claiming benefits. Unfortunately, many of these options may not make sense for you.
Explore the above options to see what you can do to increase your benefit payout.
Unfortunately, Social Security may not completely cover your expenses. In these cases, you’ll be forced to either cut expenses or earn more income to survive in retirement.