According to a study by Nationwide Insurance, 94% of Americans can’t identify the essential factors that determine their maximum Social Security benefit.1 Surprisingly, the same study shows that 54% of Americans surveyed stated that they did know the essential factors, but then failed to select them accurately. As the saying goes, “You don’t know what you don’t know.”
For many Americans, Social Security is the bedrock of their retirement income and is often their largest retirement asset. One seemingly innocuous misstep could have enormous consequences. With that in mind, let’s talk about maximizing your Social Security benefit.
Maximizing your benefit starts with your “earnings record.” Your benefit amount is calculated using your 35 highest years of income, which seems simple enough. If you’re planning to retire and you want to maximize your benefit, you should ensure that you have at least 35 years of reported income to the Social Security Administration (SSA). This step alone could increase your monthly benefit by hundreds of dollars. Additionally, if your earnings are significantly higher now, you may consider working a bit longer to replace your lowest earning years.
This next step is important but often overlooked. Check that your earnings have been accurately reported to the SSA. This should have been done by your employer; unfortunately, mistakes are often made, leaving many Americans with a reduced benefit based on inaccurate earnings reporting, without ever knowing it.
In fact, this mistake is so common that since the inception of Social Security, the Social Security Administration has accumulated over $1.8 Trillion2 (yes, “Trillion”) dollars of earnings in their “earnings suspense file.” This file contains earnings that were never matched successfully to their rightful owner by the SSA. Thankfully, you can check your earnings easily on the SSA’s website.
Now for the BIG question: when should you start your Social Security benefit? For most, the starting date you choose will have the greatest impact on your total benefit amount. Although a monthly check from the government may be hard to resist, it’s important to remember that delaying your benefit from the earliest available age (62) to the latest (70), increases your monthly benefit by 76%.3
You should also consider the impact of spousal benefits on the total benefit your family will receive. Spousal benefits are maximized when the higher earning spouse waits until at least “Full Retirement Age” to start receiving benefits.
Lastly, it’s important to determine your “break-even age,” which is the age you need to reach to maximize your benefit by delaying it. The longer your life expectancy, the greater the benefit from delaying.
When it comes to starting your Social Security benefit, there is no “right answer,” just the right answer for you. You don’t have to make these decisions alone. Speak to your financial advisor or give us a call for a consultation at 480-428-5528. For a free copy of our Social Security “Cheat sheet,” click here.
- The Harris Poll. (2021). The Nationwide Retirement Institute® 2021 Social Security Survey (NFM-20936AO). https://www.nationwide.com/lc/resources/investing-and-retirement/articles/social-security-survey-results.
- Office of the Inspector General: Social Security Administration. (2020). Inspector General Statement of the Social Security Administration’s Major Management and Performance Challenges.
- Kitces, M. (April 2, 2014). How Delaying Social Security Can Trump Long-Term Portfolio Returns Or Lifetime Annuity. Nerd’s Eye View. https://www.kitces.com/blog/how-delaying-social-security-can-be-the-best-long-term-investment-or-annuity-money-can-buy/
Disclosure: Beacon Pointe Advisors does not provide tax, legal, or accounting advice. This material provides general information only and should not be construed as tax, legal, or accounting advice. You should consult your own tax, legal, or accounting professional before engaging in any transaction.