3 Ways to Raise Your Social Security Benefit

Not so long ago, Baby Boomers viewed Social Security as a retirement program for old folks. High-earning Boomers felt that Social Security didn’t apply to them, because the monthly checks were small, and they believed the system wouldn’t be around when they retired.

Now, the tide has shifted. Nearly all Baby Boomers have embraced Social Security, and many are on a mission to get the most out of the system. Maximizing Social Security has become a national obsession.

A boomer who has earned the Social Security maximum throughout their career and who claims at full retirement age (67 for those born after 1959) will receive a monthly benefit of approximately $3,600. But, if they played their cards right, they could receive even more.

Here are three ways to increase your Social Security benefit.

1. Cost-of-Living Adjustments

The easiest way to increase your Social Security benefit is to do nothing. That’s because in 1975, Congress authorized automatic cost-of-living adjustments (COLA) based on the annual increase in the CPI-W from the fourth quarter of one year through the third quarter of the following year. The annual COLA is applied beginning with December benefits, which are payable in January. 

Most of the news reports that come out when the COLA is announced discuss whether the increase is enough for seniors on fixed incomes. What’s not so publicized is how the COLA can impact a person’s Social Security benefit over time. 

The higher the benefit is, the higher the COLA increase will be. Let’s look at an example:

Let’s take someone with a primary insurance amount (PIA) of $3,000 per month and a full retirement age (FRA) of 67. If they claim their benefit at 62, they’ll receive a monthly Social Security benefit of $2,100 ($3,000 x .70). If a 2% COLA is applied to that amount, the monthly benefit would increase by $42. 

But if the same individual claims their benefit at 70 and is receiving $3,720 per month ($3,000 x 1.24), a 2% COLA would cause their benefit to jump by $74.40, a difference of $32.40 per month.

These may not seem like large amounts, but if you multiply them out and compound them over many years, they definitely add up.

2. Earn More

The second way you can raise your Social Security benefit is by earning more. 

Many soon-to-retire Baby Boomers ask how their benefit will be affected if they continue to work. Or, conversely, if they retire early.

Your PIA is based on an average of your highest 35 years of earnings. If you don’t have 35 years of earnings, your total earnings will still be divided by 35 years to come up with the average. Working longer will allow you to replace those years of zero earnings with positive earnings, despite the amount, which increases the average.

If you already have 35 years of earnings, you can still improve your earnings record if you earn enough to cause a lower year of earnings to drop off.

Incidentally, if you keep working but at a lower salary – say you switch to part-time work – it will not cause your PIA to go down. Once the PIA has been calculated at age 62, higher earnings may cause it to go up, but low earnings will not cause it to go down. Note, however, that the benefit estimate shown on your statement assumes you will continue to work until claiming age. If you retire early, your benefit may turn out to be lower than you expected.

Related: Will Working Longer Help – or Hurt – Your Social Security Benefit?

3. Delay the Start of Benefits

Most Baby Boomers are aware of the rules that provide for a reduced benefit if they apply at age 62 and a higher benefit if they file at 70 – the amounts are shown right on the annual Social Security statement. But the difference between the age 62-amount and the age-70 amount doesn’t seem very large at first glance, especially when immediate “free money” is enticing you.

But, if you project those benefits out over a lifetime, incorporating annual COLAs, and even additional earnings – understanding that if the primary breadwinner in your family dies, his higher benefit will continue as long as the surviving spouse is alive – the difference between applying at 62 and applying at 70 expands enormously. Let’s look at an example:

Let’s take the case of a higher earner whose PIA is $3,000 and whose FRA is 67. 

• If they were to take their benefit at 62, they would receive 70% of $3,000, or $2,100 per month. 
• If they wait until full retirement age, they will receive the full $3,000 per month.
• If they delay until age 70, the benefit will increase by 8% annual delayed credits between full retirement age and 70, giving them a benefit of 124% of $3,000, or $3,720 per month.

Adding up all of the monthly benefits, by age 90, the individual will have received a total of $730,800 if they file at 62, or $937,440 if they file at 70. If they don’t make it to 90 years old, their surviving spouse will continue to receive their benefit as their survivor benefit. 

These amounts do not include COLAs or additional earnings.

So, now, let’s add COLAs. 

Using an average COLA of 2% means that the total benefits at 90 would be $961,488 if the individual claims at 62, or $1,328,567 if they claim at 70. The monthly benefit at age 90 would be $3,691 if they had claimed at 62, versus $6,616 if they had claimed at 70. 

Now, let’s include additional earnings.

If the individual keeps working at maximum salary until age 70, their PIA goes up to about $3,100. With 8% annual delayed credits and 2% COLAs, this boosts their age-70 benefit to $4,601 per month. By age 90, COLAS will have increased their benefit to $6,836 and total lifetime benefits to $1,372,853.

So, if you are a 62-year-old higher earner and you want to get the absolute maximum Social Security benefit, you might:

1. Keep working at maximum salary to age 70.
2. Claim your Social Security benefit at age 70.

Real Life Application

Obviously, these examples show the extremes, from stopping work and claiming benefits at 62 to stopping work and claiming benefits at 70. In real life, the stop-work age and the claim-benefits age could be different. You might stop working at 62 and file for benefits at 70. This would give you more benefits than if you had filed at 62, but less than if you had kept working until age 70.

Social Security strategies must naturally be integrated into your overall retirement plan. But if you’re looking to get the most out of the system, remember this: Work until 70, claim at 70.

There may be more ways to increase your Social Security income if you also qualify for spousal benefits, divorced-spouse benefits or survivor benefits. It’s also important to recognize that, while we’re outlined some general rules of thumb, there’s no guarantee the advice here works well within the context of your overall financial plan and greater retirement goals.

For customized help, our team of financial advisors are available. We have the calculations tools necessary to analyze Social Security claiming strategies specific to your unique situation.

Elaine Floyd, CFP®, is the Director of Retirement and Life Planning, Horsesmouth, LLC.