Getting the maximum benefit from Social Security is no easy task. Simply put, it requires taking a few important steps in your professional career. and wait several more years to finally claim benefits. As you would expect, those who pay into the system at the highest rate over a long period of time are the most likely to reach the maximum payouts.
Below, you’ll find the three things you’ll need to do to optimize your Social Security payments in retirement.
1. Postpone the deposit of benefits until the age of 70
While this is not an option for many people, as they will need the money long before they turn 70, the story goes that the longer you wait to apply for benefits, the more you will receive. If you apply for benefits at 62, you will receive about 30% less than if you had waited for full retirement age (FRA), now 67 if you were born after 1960. At your FRA, you will receive 100% of your standard service.
If you want to take advantage of the maximum benefits possible, and instead of filing at 67, you can wait a few years and apply at 70. For each year you spend your FRA, you will receive an 8% increase in monthly benefits – – this will likely be a much higher return than you will receive on any guaranteed income product on the market today. The increase in benefits beyond the FRA comes from deferred retirement credits, which are actuarial adjustments for not claiming benefits earlier.
2. Reach the maximum salary base for 35 years
Part of receiving the maximum monthly check at retirement is a direct product of having paid in the maximum possible amount during your professional career. Your Social Security benefit is calculated by taking the amount of tax you paid to the Social Security Administration (SSA) during your top 35 earning years. If you only worked 15 years before you retired from paid work, you will have an average of years of zero in your final calculation and thus you will receive a smaller benefit.
The maximum Social Security salary base in 2021 is $ 142,800, and it will increase to $ 147,000 in 2022. This means that all income up to these amounts will be taxed at a rate of 6.2%, and you will receive the maximum Social Security credit for those years. As long as you earn enough to reach maximum base salary over your top 35 years, you will be able to receive the maximum monthly check in retirement.
3. Replace the low income years
Say you had to take time off from work in your 20s or 30s to care for a family member with a serious medical condition or to bond with a new baby. While these circumstances are normal, understandable, and legitimate, those years will reflect zero income when it comes to calculating your social security in retirement. Unfortunately, this means that you will receive less money than if you had continued to work.
The good news is that the SSA calculates your monthly retirement benefits based on your 35 the highest incomes year. This means that if you were to continue working at least to some extent into your sixties, you might be able to replace some of the zeros that weigh on your average. Even if you don’t reach the maximum annual salary base in those years, you can get a higher overall benefit by even earning a part-time salary and contributing a little to the tax system.
Simple but not easy
In order for you to qualify for the maximum Social Security benefit, the stars must align in a very certain way during your professional career. You will need to consistently earn a high income and have the luxury of delaying your claims until age 70. It depends on a long list of factors, but your health, as well as your desire to continue working for almost four decades, are certainly relevant considerations.
Even if you don’t reach the maximum benefit amount, don’t worry. Many factors, both financial and non-financial, drive the decision to purchase Social Security. What you can do, however, is know the rules and try to give yourself the best possible chance of earning a healthy monthly check in retirement.