Over the course of their working lives, Americans pay payroll taxes into the Social Security fund. Individuals may opt to receive Social Security benefits as early as age 62. However, claiming SS benefits before the full retirement age (FRA) reduces your payment even though you will receive the benefit for a longer time. Aside from the age you claim SS benefits, your earnings history helps calculate your benefit amount.
Investopedia explains the three types of benefits the Social Security Administration (SSA) offers:
- Retirement – This benefit is the most commonly known and is available to those who are age 62 or more and have worked a minimum of ten years.
- Disability – People unable to work due to a disability may be eligible for Social Security Disability Insurance (SSDI) benefits if they meet eligibility requirements.
- Survivor – This benefit is typically available for widows and widowers, eligible divorced spouses, and children of a deceased worker/retiree after their death.
A fourth type of benefit, called Supplemental Security Income (SSI), is administered by the SSA but is not part of Social Security as general tax revenues finance the program.
Retirement Benefits Strategies
There are strategies you can employ to maximize your Social Security Retirement Benefits. Speaking with a financial planner, disability, or elder law lawyer can help you assess which options to utilize. Some of these strategies have eligibility requirements to consider.
Work a full 35 years
You can work for as little as ten years and still receive SS benefits; however, the SSA calculates your benefits based on the 35 years you earned the most. Zeroes are applied for non-working years, decreasing your benefit for every year less than 35.
If you work more than 35 years, a higher earning year will cancel out a lower earning year in the SSA’s calculation. To ensure you receive the maximum benefit, work for at least 35 years. In 2023, the maximum benefits adjusted for a cost-of-living adjustment (COLA) to offset inflationary pressures are:
- $2,572 for individuals retiring at age 62
- $3,506 for individuals retiring at their full retirement age
- $4,555 for individuals retiring at age 70.4
A higher salary yields higher SS payments in retirement. However, payroll taxes have a maximum amount of earnings subject to the Social Security payroll tax, which is used to calculate your benefit. Each year the amount is adjusted for inflation. In 2023, earnings up to $160,200 are part of your retirement benefit calculation. SS does not tax any earnings over this amount. The un-taxed overage doesn’t factor into future Social Security retirement payments.
Work and wait until full retirement age and beyond to claim benefits
Monthly payments will receive a permanent reduction for individuals who claim their Social Security before their full retirement age (which is currently 66 or 67 depending on your date of birth). If you can wait until age 70, your payment will increase by about 8 percent each year you delay. This percentage increase is unrelated to COLA increases.
Collect available spousal benefits
If you’re married and not the primary source of income or have little earned income, you may be eligible for spousal benefits for up to 50 percent of your spouse’s eligible income. You can maximize your Social Security benefits as a couple since one spouse’s work earnings may be substantially lower than the other.
Spousal payment percentages are reduced for those beginning benefits before reaching the full retirement age. Additionally, if you and an ex-spouse were married for at least ten years, you may be able to claim SS benefits based on your former spouse’s work record.
Receive applicable dependent benefits
If you have children (biological, step, or adopted child) who are dependents under the age of 19, you may qualify for additional SS payments of up to one-half of your full retirement benefits, subject to annual limits. For children to qualify, they are generally unmarried, full-time high school students, or severely disabled before reaching age 22.
These dependent benefits don’t decrease the SS benefits a parent can receive. However, there is a limit for family members. This number is generally 150 – 180 percent of the parent’s full SS benefit amount.
Keep account of your earnings
If you opt to work after SS payments start, ensure you don’t exceed the allowable earning limits by monitoring your earnings. In 2023, the allowable earnings are $21,240 if you are below full retirement age and $56,520 when you reach FRA. If you are younger than FRA, there will be $1 withheld for every $3 earned above the limit. When you reach your FRA, you can continue to work and collect SS payments without penalty. Your SS benefit will be recalculated to address any withheld payments in the past.
Minimize your Social Security taxes
You may pay taxes on some part of your SS income in retirement. Suppose your adjusted gross income, nontaxable interest, and half of your SS benefit exceed more than $25,000 for an individual and $32,000 for a couple. In that case, up to fifty percent of your benefit could be taxable.
If your income sources exceed $34,000 and $44,000 for individuals and couples, income tax could be assessed on as much as 85 percent of your SS benefit. Be aware these tax thresholds are not annually adjusted for inflation. Also, if you are still working, watch out for a tax-bracket jump that may minimize your SS benefits.
Maximize survivor benefits
If a deceased or ex-spouse is eligible for a higher SS payment than yourself, you may be eligible for that higher survivor benefit. The higher benefit may apply even if your spouse died before receiving benefits. A disability or elder law lawyer can help you understand the rules for receiving survivor benefits.
Survivor benefits are particularly important as a surviving spouse must adjust spending habits to accommodate lost income sources. Retirees can boost a surviving spouse’s benefit by delaying their claim to SS benefits until age 70.
Review your records and check for mistakes
Errors in your record can result in lower benefits. By creating a my Social Security account online with the SSA, you can download your Social Security Statement each year. You can use these statements to ensure your earnings history is accurate and that the SSA correctly recorded your paid SS taxes.
Don’t assume the SSA reports are correct. You can use your W-2 form, pay stub, or tax return to compare figures. If you find discrepancies, report them to the SSA and follow up until the record is corrected. Errors could impact the benefit you receive for the remainder of your life.
Changing Your Mind About Your SS Strategy Within a Year
You have the right to suspend your SS benefit if you pay back the money you have already received so you can collect your benefits later in life. But you must have received benefits for less than a full year. Changing your mind typically happens if you get a job after retirement or perhaps inherit money and decide you can delay filing to receive a higher future benefit payment.
Your Retirements Bottom Line
Social Security retirement benefits exist to help retirees meet the challenge of reduced or fixed-income living and are a crucial part of successful retirement planning. You can increase your benefits by implementing a few key strategies. An experienced disability or elder law attorney can help you assess your family situation and financial goals and develop a plan of action, taking full advantage of all available strategies that maximize your Social Security benefits. Contact our office at (718) 979-7477 to set up a time to discuss planning opportunities.