Expanding Your Income
The Social Security Administration relies on a system of credits to determine if you qualify for benefits. The rule is that you must work in a job covered by Social Security and pay Social Security taxes to earn credits. Individuals born in 1928 or later need a total of 40 credits to receive benefits. In 2021, you earn one credit for every $1,470 you earn. You can earn up to four credits in a year. This means you can achieve the maximum number of credits in a year by earning only $5,880.
You do not need a high income to receive benefits upon retirement. The more money you earn before retirement, the higher your monthly Social Security payments will be, up to a certain point. The Social Security Administration determines your benefit amount based on the 35 years in which you had the highest average monthly earnings (AIME). It then applies a formula to those earnings to calculate your primary insurance amount (PIA), which is in turn used to arrive at your monthly benefit amount.
Income exceeding the maximum taxable earnings limit, which changes each year, is not considered when determining how much money you will receive. Reaching this income limit is a worthy goal to pursue. It can help you increase the amount of the payment you will receive after retirement from your job.
Continuing to Earn
The Social Security Administration uses 35 years of work history when you were earning the most to determine your average monthly earnings (AIME). This number is used to calculate the primary insurance amount (PIA) and the monthly amount you will receive upon retirement, based on average monthly earnings. If you do not have income in certain months, your average earnings will decline. Conversely, higher monthly income will increase your average monthly earnings and lead to higher payments each month. To increase your Social Security payments, try to build 35 years of work history. Aim to have short or no income periods within those years.
Delaying Retirement Age
If you want to increase your Social Security income by 24% or more and still want to work and can do so, do not retire right away. The Social Security Administration grants delayed retirement credits to individuals who wait until they exceed their full retirement age (FRA) to start receiving payments. These credits apply because once you reach full retirement age, payments do not stop. The FRA is determined based on your birth date. It is 67 years for anyone born in 1960 or later. It is reduced by two months for each year prior to that. The FRA does not drop below age 65 for those born in 1937 or earlier.
For every year after your full retirement age that you delay receiving payments, you will receive an increase in your PIA of 5.5% to 8% per year. The amount depends on your birth date, which increases the payment amount by a fraction of 1% for each month. For example, individuals born in 1943 or later receive an annual increase of 8% in PIA, which equals a payment increase of two-thirds of 1% each month. There is no benefit in waiting past age 70 to apply, as these increases are not provided after that point.
Even
If you decide to defer receiving Social Security payments after full retirement age, you must still sign up for health care (Medicare) during the seven months that begin three months before the month you turn 65. For example, if you turn 65 in September 2025, you can enroll anytime from June to December of that year.
Coordinating with Your Spouse
If you are married, you and your spouse need to decide as a team how you want to receive Social Security payments. By using survivor and spouse benefits, synchronized couples in their payment choices are likely to increase their benefits more than couples who do not.
Survivor Benefits
The survivor portion of Social Security provides retirement benefits for the spouses of deceased workers. Widows and widowers are typically eligible for reduced payments at age 60. By waiting until you reach full retirement age to start survivor benefits, you can receive higher payments every month. If you qualify for retirement benefits on your own, and your benefit is higher than your survivor benefit, you can also switch from survivor benefit to your retirement benefit at age 62.
Combining Benefits
If your living spouse is receiving benefits, you may also be able to claim spouse payments regardless of whether you qualify on your own work record. If you can receive Social Security money on your own, but your spousal payments are higher than your own retirement benefits, getting spousal benefits will allow you to combine benefits up to the higher spousal amount.
Similarly, if one of you turned 62 before January 2, 2016, you might be able to use a limited filing strategy to collect spousal payments for a few years. Then you can switch to your own benefit amount when you reach age 70 to get delayed retirement credits and a higher amount.
Receiving Benefits for a Former Spouse
If you are not currently married but were married in the past for at least 10 years, you may still be able to apply for spousal or survivor benefits. These benefits will be based on your ex-spouse’s earnings. Many divorced individuals are not aware of their payment options based on their former spouse’s earnings record. Look into all your options so you can claim in a way that benefits you more from your income at retirement.
Limiting Your Taxes
Under IRS rules, some people may have to pay federal income tax on up to 50% of their Social Security benefits. They may also have to pay a tax on 85% of their Social Security payments if they are earning a substantial amount of combined income.
The IRS determines combined income by adding together non-taxable interest, half of your Social Security payments, and your adjusted gross income. If your combined income is between $25,000 and $34,000 as a single filer or between $32,000 and $44,000 as a joint filer, you will pay tax on up to 50% of your benefits. If your combined income is above the upper limit of those ranges, you will pay tax on up to 85% of your benefits.
You can spread out other income you earn over several years instead of taking it all in one year. Using this method can help you limit taxes on your payments and keep a larger portion of your Social Security income. For example, if you have a 401(k) account, do not withdraw too much from it in one year.
Calculation
Mathematics
The best way to get an approximate estimate of your future Social Security payments and see how increases may affect them is to use an online Social Security calculator. For example, the quick Social Security calculator predicts your benefit amount based on your birth date, current earnings, and the retirement date you will set. Enter some values to see how your choices might affect your payment amount.
As you approach your retirement date, include your payment amount in an income plan that incorporates your assets and other income sources. You will get a complete picture of what your financial picture will look like once you decide to retire.
The information in this article is not tax or legal advice and should not be treated as such. State and federal laws change frequently, and the information provided in this article may not reflect your state’s laws or the most current changes in the law. For current tax or legal advice, please consult a tax advisor or attorney.
Source: https://www.thebalancemoney.com/how-to-increase-your-social-security-benefits-2388932
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