You may not be able to cover all your expenses in retirement with Social Security, but receiving larger checks can help. In fact, even if you’re not eligible yet, you have a great deal of control over how much your benefit is.
According to Fool, You can increase your Social Security payments in the future by improving your income today. This isn’t the only way to get more money from the program. It’s possible for you to add an additional $1,830 to your monthly Social Security checks by taking just one simple step.
How to calculate your Social Security benefit in a nutshell
Based on your average indexed monthly earnings (AIME), the government determines your Social Security benefit. Using adjusted inflation data, this is your average monthly income over your 35 most productive years. Your AIME is used to calculate your benefit formula based on your birth year. Example: A person turning 62 in 2022 should use the following formula:
- Multiply the first $1,024 of your AIME by 90%.
- Multiply any amount over $1,024 up to $6,172 by 32%.
- Multiply any amount over $6,172 by 15%. Total your results from Steps 1 to 3 and round down to the nearest dollar.
In the formula above, $1,024 and $6,172 are known as the bend points. These change every year, but the rest of the benefit calculation stays the same.
With the help of this formula, you can calculate how much Social Security you will receive if you claim at your full retirement age (FRA). Your age would range from 66 to 67, depending on your year of birth. Although not everyone can claim that age. Whether you enroll before or after your FRA, the government uses a different formula (listed above) to calculate whether you will gain or lose money each time you receive a check. If you start early, your benefit will shrink by 5/9 of 1% per month for 36 months. Whenever you sign up more than 36 months in advance of your FRA, you’ll lose 5/12 of 1% per month. When you apply for Social Security at age 62 and your FRA is 67 or 66, you only get 70% of your full benefits per check.
The amount of your check will rise by approximately 8% per year if you delay benefits past your FRA. Until you reach 70 when your maximum benefit kicks in, the amount of your check will rise by approximately 8% annually. If your FRA is 67, that’s 124% of your full benefit per check, and if your FRA is 66, that’s 132%. How to increase your Social Security check by $1,830. Social Security’s largest monthly benefit in 2022 will be $4,194. It is required that you have earned at least a predefined amount each year for 35 years in order to qualify. From past years, wage inflation has allowed the amount to rise to $147,000 for 2022. Those few who do manage to accumulate such a long earnings history and delay benefits until they turn 70 will reap the biggest payouts from the program.
It is important to be patient, though. An individual who signs up at 62 with the same income will receive $2,364 per check. The amount is still nice, but it’s $1,830 lower than the maximum. In reality, delaying benefits won’t net the average person that much money. When you are 62 you qualify for an average $1,661 benefit, but if you wait until 70 your benefit will be about $2,943 if your FRA was 67. About $1,282 is the difference. Nevertheless, that’s enough for many people to noticeably improve their retirement prospects. However, it is not a perfect strategy.
If you expect to live into your 80s or beyond, delaying Social Security benefits makes sense. However, if you have a terminal illness or a poor family history of health, you should sign up sooner. You will receive smaller checks if you delay, but the extra years you will get from the program may help you get more from it than you would without it. Additionally, if you cannot afford your retirement expenses without benefits, you may need to sign up for them early. To get some of the benefits of delaying Social Security without straining your finances too much, you may consider putting it off for a few months or a year. Or you may consider delaying retiring entirely.
Prior to making a decision, you need to examine all your options before you decide on a strategy. When you review your retirement plan each year, decide which strategy makes the most sense for you at this time.