To boost your Social Security payments, know and follow a few key guidelines. You’ll be glad you did, especially if your other retirement savings are small or nonexistent.
A Nationwide Retirement Institute 2023 Social Security survey found that one in five adults age 50 or above say they have no source of retirement income other than what they will be receiving from Social Security.
Take charge of your financial future. The amount you earn throughout your career as well as your age when you sign up play big roles in how much money you will receive from Social Security.
You can maximize your payments by understanding the following 10 rules:
— Make sure your payroll tax is correct.
— Pay attention to the $160,200 tax cap.
— Avoid annual earnings gaps.
— Adjust to the $1,827 average payment.
— Know when you can get your Social Security benefits.
— Understand full retirement ages.
— Be aware of the Generational Differences.
— Don’t wait until after age 70 to start claiming Social Security.
— Recognize the $21,240 earnings limit.
— Beware the $25,000 retirement income tax.
1. Make Sure Your Payroll Tax is Correct
Most workers contribute 6.2% of their earnings into the Social Security system, and employers match this amount by the same percentage. (Self-employed workers contribute 12.4% of their income to Social Security.)
You can see how much you have paid in and check that your earnings have been recorded correctly with a my Social Security account.
If you spot any errors on your Social Security statement, correct your Social Security earnings record by gathering appropriate documentation and contacting the Social Security Administration. The current 6.2% Social Security tax rate has been in effect since 1990.
2. Pay Attention to the $160,200 Tax Cap
The maximum amount of earnings subject to Social Security tax is $160,200 in 2023. Earnings above the tax cap aren’t taxed by Social Security or used to calculate retirement benefits. Workers who earn more than $160,200 in 2023 will notice a bump in their paychecks when Social Security taxes stop being withheld.
Dana Ronald, chief executive officer of the Tax Crisis Institute, notes that the thresholds for this change each year, so pay attention.
The Social Security taxable maximum is adjusted for inflation each year. For example, the tax cap was $142,800 in 2021, $51,300 in 1990 and just $3,000 in 1950 and earlier.
[See: 10 Ways to Increase Your Social Security Payments.]
3. Avoid Annual Earnings Gaps
Your Social Security payments are calculated using the 35 years in which you earned the most. If you don’t work for at least 35 years, zeros are averaged in — and they’ll reduce your retirement payments.
Working for more than 35 years can boost your payments because your lowest-earning years could be dropped from the calculation. If you continue to work in retirement, even after starting to receive Social Security payments, your benefit will be recalculated to give you credit for another year of earnings, which can replace a year of low or no earnings.
4. Adjust to the $1,827 Average Payment
“The average Social Security benefit for retired workers in 2023 is $1,827 per month,” says Ryan McCarty, certified financial planner at Castle Rock Investment Company. “However, your benefit amount will depend on your earnings history, age when you receive benefits and other factors.”
For instance, retired couples bring in an average of $2,972 monthly. Payments are adjusted each year to keep up with inflation, as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers. Cost-of-living adjustments have ranged from zero in 2010, 2011 and 2016 to 14.3% in 1980.
Social Security beneficiaries received an 8.7% cost-of-living adjustment in 2023. The maximum possible Social Security payment for a worker who retires at full retirement age in 2023 is $3,627. Consequently, if you need more money to live on than these figures, make sure your other retirement investments keep pace.
5. Know When You Can Get Your Social Security Benefits
Workers first become eligible to start Social Security retirement benefits at age 62. However, monthly payments are reduced by 25% or 30% if you claim them at this age, depending on your birth year.
For example, a baby boomer who qualifies for $1,000 per month from Social Security at age 66 would get a reduced payment of $750 per month if he elects to sign up for Social Security at age 62. Those who have a full retirement age of 67 get a bigger benefit reduction for starting Social Security payments early.
6. Understand Full Retirement Ages
Your full retirement age is the age at which you can collect the Social Security benefit you have earned without any reductions.
“It’s essential to understand your full retirement age, as claiming Social Security benefits before your full retirement age can result in a reduced benefit,” McCarty says.
The original Social Security retirement age was 65. However, a 1983 law increased the full retirement age depending on your year of birth.
People born between 1943 and 1954 are eligible to claim unreduced Social Security benefits at age 66. The full retirement age then gradually increases from 66 and two months for people born in 1955 to 66 and 10 months for those born in 1959.
7. Be Aware of the Generational Differences
People born in 1960 or later become eligible for their full Social Security retirement benefit at age 67. Millennials and members of Generation X need to wait a year longer than the baby boomers and two years longer than their grandparents to claim their full retirement benefit.
Those born after 1959 also experience bigger reductions in Social Security benefits if they start payments before their full retirement age and get less of a benefit if they delay claiming Social Security past their full retirement age.
8. Don’t Wait Until After Age 70 to Start Claiming Social Security Payments
Social Security payments increase for each month you delay starting your payments — up until age 70.
“Some of my clients have succeeded with strategies like delaying their benefits to increase the amount they receive each month or reducing benefits early to collect income over a longer period. The best approach depends on your needs, financial situation and retirement goals,” Ronald says.
After age 70, there is typically no additional benefit to waiting to sign up. Retirees can boost their monthly payments by 24% to 32%, depending on their birth year, by claiming Social Security at age 70.
[READ: 5 Reasons to Claim Social Security at Age 70.]
If you already started your Social Security payments, you have the option to temporarily suspend your Social Security payments between your full retirement age and age 70 to qualify for larger payments later on in retirement.
Suspending Social Security payments allows you to earn delayed retirement credits and then restart Social Security payments later at a higher rate.
9. Recognize the $21,240 Earnings Limit
If you work and collect Social Security at the same time before your full retirement age, part of your Social Security payments could be temporarily withheld if you earn more than $21,240 in 2023.
“If you want to work prior to your FRA and take Social Security benefits simultaneously, you can,” says Kevin Walton, a registered Social Security analyst. “However, there is an income cap of $21,240. As of 2023, it gets bumped up annually.”
Beneficiaries who exceed the earnings limit have $1 in benefits withheld for every $2 in income above the limit. Those who reach full retirement age in 2023 have a higher earnings limit of $56,520, and the penalty declines to $1 withheld for every $3 in excess of the earnings limit.
However, once you reach your full retirement age, there’s no benefit reduction for working and claiming benefits at the same time, and your payments will be increased to give you credit for payments that were withheld in the past.
10. Beware the $25,000 Retirement Income Tax
You might need to pay income tax on your Social Security payments.
“Social Security benefits are taxed,” Walton says. “In general, if a taxpayer has other sources of income and a combined income of at least $25,000 for single filers or $32,000 for married filing jointly, Social Security benefits are treated as income for taxation purposes.”
If the sum of your adjusted gross income, nontaxable interest and half of your Social Security benefits exceeds $25,000 ($32,000 for couples), half of your Social Security benefit becomes subject to income tax. And if these income sources top $34,000 ($44,000 for couples), income tax could be due on 85% of your Social Security payments.
You can have federal taxes withheld from your Social Security benefit or make quarterly estimated tax payments to the IRS. Most states don’t tax Social Security income, but there are a few states where your Social Security income might be taxable.
Follow the Rules to Make the Most of Your Retirement Years
After a lifetime of working and contributing to Social Security, you are entitled to start claiming your benefits. To help ensure that your retirement years are financially fruitful, be cognizant of the Social Security system. You can make the most of it by making informed decisions, now and in the future.
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10 Social Security Rules Everyone Should Know originally appeared on usnews.com
Update 08/31/23: This story was published at an earlier date and has been updated with new information.
