Currently, most American seniors are eligible for Social Security retirement payments, which, according to the most current statistics, average $1,658 per month or $19,896 per year for the typical recipient.
It is much less than the highest allowable Social Security income of $4,194 per year. While it is necessary to have the “perfect storm” of requirements to get the maximum benefit, various methods enhance your benefit to be bigger than the average in the United States.
The method through which your Social Security benefits are computed
- To get the full explanation of how your Social Security payment is calculated, please see our guide to Social Security benefits, but for the short version, please see this 30-second video.
- The Social Security Administration (SSA) maintains track of how much money you make from work during a year.
- Your greatest 35 years’ earnings, up to the annual limit for each year, are adjusted for inflation and averaged together to determine your first payment when you reach full retirement age (age 65).
- If you elect to collect Social Security retirement benefits before reaching the age of retirement, the amount you get is altered.
The three most effective methods of increasing your Social Security payout
There are only three main ways for most workers to increase their Social Security benefit above and beyond the average:
- Work longer.
- Earn more money each year.
- Wait longer before beginning to collect your benefit.
While the Social Security formula is complicated and takes a variety of factors into account, there are only three main ways for most workers to increase their Social Security benefit above and beyond the average: work longer, earn more money each year, or wait longer before beginning to collect your benefit. As a result, let’s go over them one by one:
Work for a longer period.
The Social Security formula takes into consideration 35 years’ worth of wages. If you’ve worked for fewer than 35 years, zeros will be utilized to calculate your average earnings to determine your benefits.
Although you may have worked for 35 years, it may be in your best interests to continue working, particularly if you receive a better salary.
I can utilize my current circumstances to illustrate why. My Social Security statement shows that I have 25 years of work experience so far, but the first few were spent at fast-food jobs while still in high school, earning a few thousand dollars a year on average.
The incomes of many employees when they first begin their jobs are low compared to what they would earn later in their lives.
In a nutshell, for each high-earning year you work beyond the 35 years allowed by the Social Security Administration, a lower-earning year is removed from the computation, which may result in a large increase in your income.
Increase your earning potential.
Although it is likely the most apparent of the three, it is nevertheless worthwhile to highlight. Because the Social Security formula is based on your average salary throughout your career, one approach to raise your monthly benefit is to figure out how to produce an additional revenue stream.
Earning more money does not need a change in employment. There have never been more opportunities for side hustles than today, and even a very small amount of additional money may significantly impact the benefit calculation.
Allow yourself a little more time to collect your retirement benefit.
Finally, but not least, one of the most efficient ways to boost your benefit is to delay claiming it for a longer period. Individuals born in 1960 or after are eligible to retire at the regular retirement age (also known as the full retirement age) set by the Social Security Administration.
On the other hand, Americans may opt to begin receiving their benefits at any moment between the ages of 62 and 70.
This method is used to determine your main insurance amount, or PIA, which is the amount of money you would get at full retirement age if you were insured.
However, collecting your monthly benefit before or after reaching full retirement age might have a significant impact on your monthly income.
Consider the following scenario: your usual retirement age is 67 years old, and your computed PIA is $1,500. Based on your age when you begin collecting Social Security benefits, the following is an estimate of your monthly Social Security payout.
It would be below the national average to get an initial payout of $1,500. However, if you delay your retirement for a year or two beyond your full retirement age, your benefit will rise beyond the national average.
Why is it important to attempt to maximize your benefit?
Why is maximizing Social Security benefits such a huge problem, particularly if you’re actively saving for retirement via your 401(k), individual retirement account, or other retirement plans?
As a result, in retirement, Social Security is likely to be the only guaranteed, and inflation-protected source of income you have unless you have a pension plan.
So, even if you have a sizable nest account, maximizing Social Security benefits may provide you with more economic security and peace of mind once you reach retirement age.
Most seniors are fully unaware of the $16,728 Social Security bonus they are entitled to.
When it comes to retirement savings, if you’re like most Americans, you’re a few years (or more) behind.
However, a few little-known “Social Security secrets” may be able to assist you in ensuring a raise in your retirement income. For example, one simple method might result in a yearly income increase of up to $16,728!
We believe that if you understand how to optimize your Social Security benefits, you will be able to retire securely and with the peace of mind that we all want.