How to Increase Your Social Security Benefits

Maximize your income with a Social Security payout increase

Couple looking at documents
••• Pascal Broze

Social Security provides guaranteed income that increases with inflation, so even a small increase in your initial benefit will result in a proportionately larger benefit each year in your retirement. Taking certain actions allows you to increase the amount of Social Security benefits you will receive and boost your financial security in retirement.

Maximize Your Earnings

The Social Security Administration (SSA) relies on a system of credits to determine whether you qualify for Social Security benefits. The rule is that you must work in a job covered by Social Security and pay Social Security taxes to earn the credits. People born in or after 1929 need 40 credits to qualify for benefits. In 2020, you earn one credit for every $1,410 you earn, and you can earn up to four credits in a year. Maintaining steady employment will allow you to receive 40 credits relatively easily over a 10-year period. If, like most Americans, you work for more than a decade, you will probably earn well over 40 credits over your career, but the extra credits won't change your benefit amount.

Although you don't need a high income to become eligible for retirement benefits, the higher your pre-retirement earnings, the greater your monthly Social Security payouts will be, up to a point. This is because the SSA calculates your benefit amount based on the 35 years where you had the highest average indexed monthly earnings (AIME) and then applies a formula to the earnings to determine your principal insurance amount (PIA), which is in turn used to derive your monthly benefit amount.

Earnings over the annual limit ($137,700 in 2020 and indexed to inflation each year) are not considered in your benefit calculation. If, however, you are under the limit, find ways to progress in your career and earn more. This will have many positive financial benefits, one of which will be to increase the amount of your Social Security checks in retirement.

Earn Consistently

Social Security uses your highest-earning 35 years of work history to calculate your AIME. This number is used to determine your PIA and final monthly Social Security retirement benefit. As this calculation is based on average monthly income, if you have a zero as one or more of the numbers because you earned no income in certain months, it will pull the average earnings down. In contrast, a higher monthly income will raise your average earnings and result in a larger retirement benefit. To increase your Social Security benefits, aim to build 35 years of work history with few or no long stretches of zero-earning months.

Identify and correct a low or irregular income as early in your career as possible to increase your average monthly earnings and maximize your Social Security benefit amount at retirement.

Delay Retirement

If you want to increase your Social Security retirement income by 24% or more and still have the capacity and desire to work, put off your retirement. The SSA grants what are known as delayed retirement credits to people who wait until they are past their full retirement age (FRA) to take Social Security benefits.

These credits apply because once you reach full retirement age (FRA), your benefits do not cap out. FRA is determined by your date of birth. It is age 67 for anyone born in 1960 or later and reduces by two months for every year before that, but drops no lower than age 65 for those born in or before 1937.

For each year after FRA that you delay taking benefits, you will receive an increase in the PIA of 3% to 8% per year, depending on when you were born, which increases your Social Security payout amount by a fraction of 1% every month. For example, someone born in 1943 or later gets an 8% annual increase in PIA, which amounts to a payout increase of two-thirds of 1% every month. There is no benefit to waiting past age 70 to file, as these Social Security increases do not continue past that point, but they do apply up until then.

Accumulating delayed retirement credits incrementally increases your monthly Social Security benefit amount.

Coordinate With Your Spouse

If you are married, you and your spouse need to make Social Security decisions as a team. Married couples who coordinate their Social Security options are likely to increase their benefits more than those who don't by taking advantage of survivor and spousal benefits.

The survivor insurance component of Social Security taxes entitles the spouses of deceased workers who qualified for Social Security to retirement benefits. Ordinarily, widows or widowers are eligible for reduced benefits at age 60. By waiting until the survivor reaches full retirement age to begin benefits, you can maximize your survivor benefit. If you are eligible for retirement benefits on your own, and your retirement benefit would be higher than your survivor benefit, you can also switch from the survivor benefit to your retirement benefit at age 62.

If your living spouse is collecting Social Security benefits, you may also be able to claim spousal benefits whether you qualify on your own work record or not. If you qualify for Social Security benefits on your own, but your spousal benefits are higher than your retirement benefits, applying for spousal benefits would allow you to receive combination benefits amounting to the higher spousal benefit.

Likewise, if one of you reached age 62 before January 2, 2016, then you may be able to use a filing strategy called a restricted application to collect spousal benefits for a few years and then switch over to your own benefit amount when you reach 70 to take advantage of delayed retirement credits and a higher payout.

If you aren't married, but you were in the past (for at least 10 years) you may still be able to file for spousal benefits, or survivor benefits if your ex-spouse is deceased. Too many divorcees are not aware of their benefit options based on an ex-spouse's earnings record. Examine all your choices so that you can claim in a way that maximizes your income over your retirement.

Limit Your Taxes

Under IRS rules, some beneficiaries will have to pay taxes on anywhere from 50% to 85% of their Social Security benefits depending on their tax filing status and their combined income. This means that an increase in your Social Security benefits may be coupled with an increase in taxes.

The IRS calculates combined income by adding taxable interest, half of your Social Security benefits, and other income to your adjusted gross income. If your combined income is between $25,000 and $34,000 as an individual filer or between $32,000 and $44,000 as joint filers, you would pay tax on up to 50% of your Social Security benefits. If you earn over the upper limit of these ranges, you would pay tax on up to 85% of your benefits.

Limiting other forms of income in retirement or spreading out the income over a period of years rather than receiving it all at once can help limit the taxes you owe and keep more of your benefit amount.

Doing the Math

The best way to estimate your future retirement benefits and how Social Security increases can affect them is to use an online Social Security calculator. For example, the SSA Quick Calculator projects your benefit amount based on your date of birth, current earnings, and retirement date. Plug in different values to see how different choices may impact your benefit amount.

As you approach retirement, incorporate your benefit amount into a comprehensive retirement income plan that includes your assets, expenses, and other sources of income so that you can get a full picture of what your retirement finances will look like.