It's may not be too late to get more out of Social Security.
Several factors determine how much you collect in Social Security benefits every month, and you might have more control over them than you think.
One of the biggest factors impacting your benefit is when you claim Social Security because the earlier you claim, the smaller your benefit. The difference between claiming as early as possible at age 62 and waiting until your benefits max out at 70 can be as much as 77%.
If you've already claimed benefits, you may regret that decision. A bigger benefit later in life can be a huge help, especially as medical expenses increase in old age. Fortunately, there's a strategy that can help boost your monthly benefit, and some may be able to increase it by up to 28%.
Image source: Getty Images.
How the government calculates your Social Security benefit
There are three factors that determine how much you receive in Social Security benefits each month:
- How much you earned during your career.
- When you were born.
- The age at which you claim benefits.
The first thing the government does when you apply for Social Security retirement benefits is look at your earnings history. The Social Security Administration (SSA) will adjust each year's earnings based on the increase in the standard of living over time. It then selects the 35 highest years of adjusted earnings and averages them. That number gets plugged into the Social Security benefits formula to determine your primary insurance amount (PIA).
The primary insurance amount, or PIA, is the benefit you receive if you apply the month you reach your full retirement age (FRA). Those born in 1954 or earlier reached their FRA at 66, but it has increased by two months for each year after 1954 someone was born until topping out at age 67 for those born in 1960 or later.
To understand exactly how the timing of your Social Security claim impacts your benefits, see the table below, which shows the percentage of your PIA you receive based on your birth year and claiming age.
| Year Born | Age 62 | Age 63 | Age 64 | Age 65 | Age 66 | Age 67 | Age 68 | Age 69 | Age 70 |
|---|---|---|---|---|---|---|---|---|---|
| 1943 to 1954 | 75% | 80% | 86.7% | 93.3% | 100% | 108% | 116% | 124% | 132% |
| 1955 | 74.2% | 79.2% | 85.6% | 92.2% | 98.9% | 106.7% | 114.7% | 122.7% | 130.7% |
| 1956 | 73.3% | 78.3% | 84.4% | 91.1% | 97.8% | 105.3% | 113.3% | 121.3% | 129.3% |
| 1957 | 72.5% | 77.5% | 83.3% | 90% | 96.7% | 104% | 112% | 120% | 128% |
| 1958 | 71.7% | 76.7% | 82.2% | 88.9% | 95.6% | 102.7% | 110.7% | 118.7% | 126.7% |
| 1959 | 70.8% | 75.8% | 81.1% | 87.8% | 94.4% | 101.3% | 109.3% | 117.3% | 125.3% |
| 1960 or later | 70% | 75% | 80% | 86.7% | 93.3% | 100% | 108% | 116% | 124% |
Data source: Social Security. Calculations by author.
As you can see, delaying until age 70 results in a benefits check 24% to 32% higher than your PIA depending on when you were born. But even if you claimed early, you may still have an opportunity to collect delayed retirement credits and increase your benefits check.
The little-known Social Security rule that can boost your monthly benefit
If you want to collect delayed retirement credits but you've already started collecting benefits, you can ask the Social Security Administration to suspend them. You can suspend benefits starting at any point once you reach FRA, and the suspension will start the next month after your application's approval.
When you suspend benefits, you'll stop receiving your monthly Social Security checks. Instead, you'll accrue delayed retirement credits. Those credits will add two-thirds of a percentage point to your benefit for each month you keep them suspended. The Social Security Administration will automatically resume your benefits when you reach age 70 if you haven't resumed them already.
There are a few important caveats to consider before suspending your benefits, though.
Image source: Getty Images.
First, anyone collecting benefits on your record (except a divorced spouse) will not be eligible to continue doing so. If your spouse is collecting spousal benefits, they'll revert to their own benefit if they're eligible.
Second, if you're on Medicare, you'll be responsible for paying your Medicare Part B premiums out of pocket. Most seniors on Medicare are already collecting Social Security, so the Social Security Administration automatically deducts Part B premiums from beneficiaries' checks. You'll need to budget for the additional expense out of your own savings or income.
As long as you can manage those two points, you can consider suspending your benefits. As of this writing, someone born in Dec. 1957 still has a little time to suspend their benefits to receive up to a 28% boost to their monthly checks. Those born in 1958 can receive up to a 26.7% increase if they ask to suspend benefits upon reaching their full retirement age. If you were born in 1959 or later, you can also plan ahead and expect to receive a 25.3% boost. Anyone born in 1960 or later could get 24% added to their checks. In fact, you'll notice an even bigger bump in your benefits because the Social Security cost-of-living adjustment (COLA) will increase your benefit to keep up with the cost of living as well.
If you can afford to go a few years without Social Security, suspending benefits could be a great way to boost your income for the later years of retirement.
