The chances are good that, when you retire, you’re going to be reliant on Social Security income to make ends meet. Data from the Social Security Administration finds that 62% of current retired workers generate at least half of their income from the program. Meanwhile, national pollster Gallup surveyed nonretirees earlier this year and found that a record 88% expect Social Security to be a major or minor source of income during retirement.
This growing reliance on Social Security demonstrates how important it is for future generations of retired workers to maximize what they’ll receive from the program. While some benefit-boosting catalysts, such as the annual cost-of-living adjustment (COLA) or congressional action, are beyond our control, there are five smart and effective ways workers can increase their Social Security benefits.
1. Work well into your 60s
Some of you might be familiar with the key factors used in determining your monthly Social Security payout at full retirement age. When calculating this monthly benefit, the Social Security Administration (SSA) will take into account your 35 highest-earning, inflation-adjusted years. In other words, the no-brainer takeaway here is to work at least 35 years and earn as much as you reasonably can in those years (up to the maximum taxable earnings cap).
But the easiest way to boost your Social Security benefits might just be to work a bit longer later in life. By the time you reach your 60s, you’ll have decades’ worth of work experience that may well result in a higher salary or wage. This compares to lower annual pay that typically accompanies an entry-level job when a worker has little or no experience. Working into your 60s is going to give you an opportunity to replace low-earning years in your teens or 20s with higher-quality income years after you’ve gained the skills and experience employers will pay up for.
2. Delay your benefit claim
Another easy way to boost Social Security benefits is to simply be patient. Although eligible seniors can choose to take their retirement benefit as early as age 62, Social Security incents patience by increasing the payouts of those who wait by up to 8% per year, through age 69. All factors being equal, such as work history, earnings history, and birth year, a retired worker claiming benefits at age 70 can receive up to 76% more each month than an individual claiming at age 62.
What you might not realize is that waiting is a statistically smarter move, too. A 2019 study released by United Income compared the actual claiming decisions of 2,000 senior households with their optimal claiming decisions. By optimal, I’m referring to the claiming age that would have maximized lifetime benefits. United Income found that 57% of all seniors in the study would have made an optimal claiming decision at age 70. By comparison, only 6.5% made the best claiming choice by taking their payout prior to reaching age 64.
3. Consider a Social Security mulligan
The Social Security program also has a built-in do-over clause that can help regretful early filers increase their monthly benefit. This mulligan, officially known as Form SSA-521 (Request for Withdrawal of Application), allows retired workers receiving a benefit to request that the SSA undo their claim. If approved, it’ll be as if the worker never filed for or received benefits in the first place. This means their monthly retirement benefit will revert to growing by up to 8% a year, through age 69.
As you might imagine, there are a few important rules attached to this do-over clause. First, a retired worker must file Form SSA-521 within 12 months of first receiving benefits. And second, all benefits received will need to be paid back, in full, to the SSA in order to undo a claim.
3. Consider a Social Security mulligan
The Social Security program also has a built-in do-over clause that can help regretful early filers increase their monthly benefit. This mulligan, officially known as Form SSA-521 (Request for Withdrawal of Application), allows retired workers receiving a benefit to request that the SSA undo their claim. If approved, it’ll be as if the worker never filed for or received benefits in the first place. This means their monthly retirement benefit will revert to growing by up to 8% a year, through age 69.
As you might imagine, there are a few important rules attached to this do-over clause. First, a retired worker must file Form SSA-521 within 12 months of first receiving benefits. And second, all benefits received will need to be paid back, in full, to the SSA in order to undo a claim.
Likewise, children can be surprising benefit boosters. Unmarried minor children of workers who are receiving a Social Security retirement benefit may qualify to receive up to 50% of the primary workers’ monthly payout. Usually, this added payout ends at age 18, although there are a few exceptions: 19-year-olds in high school and disabled children whose disability began before age 22.
5. Avoid Social Security taxation, when possible
The fifth and final way to put some extra pep in your pocket is to avoid Social Security taxation, if possible.
Whether you realize it or not, Social Security benefits are partially taxable at the federal level if an individual or couple earns above certain thresholds. If a single filer’s modified adjusted gross income plus one-half of benefits exceeds $25,000 ($32,000 for couples), up to half of all benefits paid above this threshold can be exposed to federal ordinary income tax. Thus, a little tax-planning, such as investing with a Roth IRA early and often — eligible Roth IRA withdrawals don’t count as earned income — and using withdrawals to fund your retirement, can help folks avoid federal taxation.
Another good way to hang onto more of your payout is to avoid the 13 states that tax Social Security benefits to some degree. Admittedly, some states are considerably friendlier than others from a tax perspective. For instance, Missouri doesn’t even begin taxing Social Security benefits until an individual crosses above $85,000 in adjusted gross income (AGI) ($100,000 in AGI for a couple). Unless you’re rolling in the dough during retirement, most folks will avoid this tax. Nevertheless, it pays to understand the retirement income taxation rules of the state you choose to call home.