3 social security strategies to finance your retirement
You’ve probably heard that Social Security is set to get a big boost next year thanks to an above-average cost of living adjustment (COLA). But many don’t realize COLAs are only meant to help your checks keep pace with inflation — and they don’t always do it successfully.
If you want to increase the purchasing power of your Social Security benefits, you need to take action. Here are three moves that can help.
1. Work longer
The government bases your Social Security benefit on the amount of money you paid Social Security taxes on during your 35 most earning years, adjusted for inflation. You don’t have to work 35 years to qualify for benefits, but it’s best to do so if possible. Otherwise, you will have years of zero income factored into your calculation, which will permanently reduce the size of your checks.
Even if you’ve already worked 35 years, staying in the workforce could still help your future paychecks. Most people generally see their income increase over the course of their career. Once they pass the 35-year-old mark, some of their earlier low-income years are dropped from benefit calculations and replaced with more recent higher-income years, resulting in checks more important.
2. Choose the right time to register
You become eligible for Social Security at age 62, but claiming then could trick you, especially if you live to be 80 or older. That’s because signing up at age 62 is technically considered an early claim, and every month you do that lowers your checks.
You must wait until full retirement age (FRA) to register if you do not want to be penalized for applying early. That’s somewhere between 66 and 67 for today’s workers, depending on your year of birth.
You can also choose to delay benefits beyond your FRA and your checks will continue to grow until you reach age 70. This is when you are eligible for your maximum Social Security benefit. It can be the smart game if you expect to live long. You’ll receive fewer checks, but each one will be larger – so if you live long enough, you may end up with a larger lifetime benefit. But it’s not the best option for everyone.
You should aim to choose the starting age that makes the most sense based on your life expectancy. Create a my Social Security account and use the calculator to estimate your monthly benefit at different starting ages. Multiply them by 12 to get your estimated annual profit. Finally, multiply these numbers by the number of years you plan to claim benefits. For example, a monthly benefit of $2,000 claimed for 20 years leads to a lifetime benefit of $480,000.
Find the age that gives you the greatest lifetime benefit based on your estimated life expectancy and try to delay the benefits until then.
3. Coordinate with members of your household
Married couples and seniors with dependents should strive to maximize their household’s Social Security benefits, rather than their own. If both partners have worked enough, each can claim a benefit on their own work file. But they will also be entitled to a spousal benefit, which is up to 50% of their partner’s benefit to their FRA. The Social Security Administration automatically pays you or your spouse’s higher benefit, but you cannot apply for a spousal benefit until your partner registers.
Minor children or adult children who were permanently disabled before age 22 are eligible for Social Security benefits on their parent’s work record. But again, they cannot claim them until the worker registers.
If you have other people in your household who are eligible for benefits, it may be wiser for you to enroll early to allow others to bring even more money into the household.
It may not seem important to do these things right now, especially if you are far from claiming. But the steps above can help you get a clear idea of how much you’ll receive from Social Security, which in turn will help you figure out how much you need to save on your own for retirement. So take a few minutes to review the suggestions above. Then, review your Social Security strategy every year or two to make sure it’s still working for you.