Social Security can go a long way toward enjoying a comfortable retirement, especially if your savings are falling short. Nearly 60% of current retirees say their benefits are a major source of income, according to a 2023 poll from Gallup, so it's wise to maximize your monthly payments.
While much of your benefit amount is determined by factors largely beyond your control, there are a few moves that can affect the size of your checks. If you're looking to earn as much as possible from Social Security, you may want to avoid these three things that could shrink your benefits.
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1. Not working for 35 years
The Social Security Administration calculates your benefit amount by taking an average of your wages throughout the 35 highest-earning years of your career. That number is then run through a complex formula and adjusted for inflation, and the result is your basic benefit amount.
If you begin claiming before you've worked 35 full years, you'll have zeros included in your average to account for the time you were not working. This will bring down your average and lower your benefit amount.
You don't necessarily have to work 35 years to receive Social Security. In fact, most people become eligible for retirement benefits after working and paying Social Security taxes for 10 years. But to receive as much as possible, you'll need to have worked for at least 35 years.
2. Working after claiming
It's possible to continue working after taking Social Security, but depending on your wages, it could reduce your benefits.
If you haven't yet reached your full retirement age (FRA), you'll be subject to the retirement earnings test. This is essentially an income limit that determines how much, if any, of your benefits will be withheld due to your wages. There are two different limits, depending on whether you will or will not reach your FRA in 2024:
| Situation | Income Limit | Benefit Reduction |
|---|---|---|
| If you will not reach your FRA in 2024 | $22,320 per year | $1 for every $2 over the limit |
| If you will reach your FRA in 2024 | $59,520 per year | $1 for every $3 over the limit |
Data source: Social Security Administration.
So, for instance, say you're 65 years old with an FRA of age 67, and you're working part-time earning $30,000 per year. You won't reach your FRA this year, so you'll be subject to the $22,320 annual limit. Your wages are $7,680 over that limit, so your benefits will be reduced by $3,840 per year, or $320 per month.
The good news is that once you reach your FRA, your income will no longer affect your benefits. Also, the Social Security Administration will recalculate your benefit amount to account for the money that was withheld due to your earnings, and you'll start receiving larger checks.
While these reductions are only temporary, they can still have a major impact on your monthly income until you reach your FRA. If you're going to be relying heavily on Social Security, it's wise to know how your income will affect your benefit amount.
3. Claiming benefits early
To receive the full benefit you're entitled to based on your work history, you'll need to file at your FRA. The FRA varies by birth year, but it's age 67 for everyone born in 1960 or later.
Claiming before your FRA (as early as age 62) will result in reduced payments each month, while delaying benefits (up to age 70) will earn you a bonus on top of your full benefit. If you have an FRA of 67, filing at 62 will reduce your checks by 30% per month, and claiming at 70 will result in a 24% bonus payment.
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While many people are aware that claiming early will reduce their monthly payments, some don't realize that these adjustments are permanent. In fact, roughly half of U.S. adults mistakenly believe that if they claim Social Security early, their benefit will automatically go up once they reach their FRA, according to a 2023 survey from the Nationwide Retirement Institute.
In reality, your benefit amount is generally locked in for life once you begin claiming (with the exception of annual cost-of-living adjustments). That doesn't necessarily mean you shouldn't claim early, but it is important to recognize that this decision will result in smaller checks for the rest of your life.
Social Security can make an enormous difference in the quality of your retirement, and knowing how your benefits are calculated makes it easier to maximize your monthly payments. With the right strategy, you can head into retirement as prepared as possible.
