3 Social Security Secrets for Even Bigger Checks

The Motley Fool
The Motley Fool

Want a bigger Social Security benefit? Increasing the amount of money your retirement checks offer can be a smart financial move since they'll probably be a primary income source along with your savings.

But is it possible to raise your Social Security benefit? The answer is yes, though it may require some sacrifice on your part. Here are three key steps you'll need to take if you want bigger checks.

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1. Maximize your average wages

Social Security is designed to replace around 40% of pre-retirement wages. To make sure your benefits are comparable to the amount you earned -- and paid into the system -- the Social Security Administration keeps track of your wages over your career.

The SSA then adjusts each year's earnings to account for wage growth and calculates your Average Indexed Monthly Earnings (AIME) during the 35 years your earnings were highest. Your benefits ultimately equal a specific percentage of your AIME.

A higher AIME means a larger Social Security benefit . You can raise your AIME in two ways:

  • Boosting your income throughout your career by taking on side jobs, developing your skills, continually seeking out new opportunities at work, and advocating effectively for yourself during salary negotiations.
  • Working for at least 35 years, or longer in many cases. A career history shorter than 35 years will result in a lower AIME because the Social Security Administration will factor in $0 in wages for each year you fall short. A longer history can result in a higher AIME if you earn more later in life, and these higher-earning later years end up included in your average instead of lower-earning early ones.

Taking either or both steps can result in a substantially larger benefit than might have otherwise been available if you'd had more years of low earnings included in your AIME.

2. Avoid early filing penalties

AIME is just one of the key factors in determining your benefit. The other is the age when you first start getting checks.

You've been assigned a full retirement age (FRA) based on the year you were born. It would be between 66 and 4 months and 67 if you didn't turn 66 before 2022. If you don't wait until full retirement age, early filing penalties apply to reduce the standard benefit calculated based on AIME.

Early filing penalties hit you for every month you've started checks before FRA. If your full retirement age is 66 and 4 months and you file for benefits at 66 and 3 months, you'd face a month of penalties. These penalties reduce your standard benefit by

  • 5/9 of 1% during the first 36 months
  • 5/12 of 1% during each prior month

This adds up to a 6.7% penalty for each of the first three years and a 5% additional penalty for each prior year. The impact of these penalties is substantial. If you'd have had a standard benefit of $1,600 at a full retirement age of 67 and claim benefits at 62, you'd end up losing 30% of that benefit due to early filing penalties, and it would be reduced to just $1,120.

3. Claim all the delayed retirement credits you can

Avoiding penalties for claiming benefits ahead of FRA is just the first step in getting a larger Social Security check. If you want the biggest monthly benefit possible, waiting even longer is necessary. Specifically, you'll need to delay filing for retirement benefits until age 70.

Delayed retirement credits are available to those who wait to start getting checks until after FRA. Like early filing penalties, they're applied monthly and based on a percentage of your standard benefit. These credits increase your checks by 2/3 of 1% per month or 8% for each full year of delay. They can be earned only until age 70, though.

If you max out the three years of delayed retirement credits available with an FRA of 67, you will end up with a 24% benefit increase, and your standard benefit of $1600 becomes a monthly benefit of $1,984. This is a full $864 per month higher than the checks you'd have received starting at 62. Of course, you'd have given up eight years of potential income to get those higher checks, though, so you need to make sure you'd break even if you go this route.

For most retirees, delaying until 70 ends up being your best bet for bigger monthly checks and more lifetime income. Just be sure you've considered both the pros and cons of delaying a claim before you decide that waiting to file for benefits to earn bigger checks is the right choice.

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