How to Maximize Social Security Retirement Benefits

After years of paying in and looking forward to collecting the rewards of your labor, many retirees aren't aware of the ins-and-outs for maximizing their benefits.
Social Security card and a bed of money representing the high cost of living on a fixed income

Social Security plays an integral role in the quality of life for retirees.

According to Prudential, Social Security accounts for about 40 percent of the total retirement income for U.S. seniors. What else do older Americans rely on? Individual investments and traditional pensions used to make up some of the balance. But these have all but disappeared.

AARP offers an online Social Security calculator to help you explore options. This is a great starting place for making decisions. Can you afford to ‘retire early’ and start getting benefits at 62? Should you wait until full retirement age? Can you postpone until you’re 70 and get the largest monthly benefit? Working with the online calculator, you can figure out how much you’d receive at different ages.

Naturally, you want to get the most from all the years you paid into the system. Keep on reading to learn ways to maximize social security in your retirement strategy.

Social Security Strategies: How to Optimize Retirement Benefits

Strategy 1: Understand How Social Security Works

As you learn how to manage money in retirement, one important aspect to consider is your Social Security benefits. But before you can fully maximize those benefits, it's crucial to understand how the system works. When are you eligible to start receiving them? How exactly are they calculated?

Taking the time to research and educate yourself on these aspects can pay off in the long run. Only then can you make informed decisions on when to begin receiving benefits and how best to structure your retirement income.

It may seem overwhelming at first, but with a little guidance and understanding of the system, you'll be able to confidently make choices that will optimize your Social Security benefits in the future.

Strategy 2: Work with a Financial Advisor

Planning for retirement can feel overwhelming, especially when it comes to navigating the complexities of Social Security. That's where a financial advisor comes in. They’ll be the ones to serve as a financial guide for seniors.

They have the expertise and experience to guide you through the process and make you are maximizing social security benefits in your retirement strategy. But that's not all a financial advisor can do for you - they can also help plan for other aspects of retirement, such as withdrawals from your 401(k) or IRA.

Working with a financial advisor is an investment in your future and can give you peace of mind knowing that you are on track towards a comfortable retirement.

Strategy 3: Wait to Collect

Many experts advise waiting until you reach full retirement or longer to start collecting benefits. Retirees often believe that they could never make up the total difference between waiting to collect benefits at their full retirement age and collecting early, which reduces the amount of money received monthly.

For example, people born in 1953 or earlier can retire with full benefits at age 66 but can begin early payments as young as 62. That's four years of regular payments. The fact is, however, they could nearly double their monthly income if they wait to retire until age 70. Benefits increase by 8 percent for every year following full retirement age; cost of living raises also apply.

If you have enough income from other sources, aim for waiting. Waiting to collect can make a substantial difference in the monthly income you ultimately receive.

Strategy 4: Avoid Higher Taxes

Senior African American man looking at documents while sitting at desk near laptop

Retirees move into a higher tax bracket when their income reaches a certain point. In 2019 and 2020, for example, 50 percent of Social Security income was taxed if retirees meet an income threshold of $25,000 for singles and $32,000 for married couples. That percentage jumps to 85 percent when the combined income from both Social Security and investment withdrawals reaches $34,000 for singles and $44,000 for couples.

If it works with your situation, wait until after the age of 70 to collect Social Security. Postpone or avoid those high tax brackets. Draw on investment accounts for living expenses. You can start drawing money from private investment accounts when you are 59.5 with no penalty.

The IRS helps taxpayers by offering software and a worksheet to calculate Social Security tax liability

Strategy 5: Switch to Roth

While you're still working, many experts advise making a move. You should consider moving your 401K and traditional IRA funds into a Roth IRA. You'll pay taxes on the money you move, which can be absorbed into your current year's tax bill. Spread the withdrawals over as many years as you can to reduce the tax hit.

By removing the taxable portion of your investments, you won't get hit with a large tax bill when you least expect it - after you retire and begin collecting Social Security.

Consult your accountant or tax specialist for recommendations that match your income and investments.

Strategy 6: Work Part Time

Seniors who need the income early may decide to work part time to supplement their lower monthly payments and not have to work as hard.

For example, in 2019, you could earn up to $18,240 per year ($1,520 per month) without the income affecting your Social Security payment. For every $2 you earn over that amount, your Social Security benefit is reduced by $1.

Once you reach full retirement age, there is no cap on the amount you can earn. Benefits are not reduced at all. As of 2020, you can earn any amount and not be affected by the social security earnings test, once you reach full retirement age, or FRA. At this time, this is age 66, if you were born between 1943 and 1954 and will gradually increase to age 67 for people born in 1960 and later.

Strategy 7: Join the Gig Economy

Senior Uber driver sitting in a car with a female passenger

Older adults are joining the gig economy to make their Social Security benefits go further. Options range from driving to contract work to seasonal gigs. If you’ve been thinking about adding some social interactions to your life, this can be a great way to find meaning, make friends—and make some extra cash.

Many seniors are working gig jobs such as driving for Lyft or Uber. Others are using their homes or remodeling garages to create AirBnb income. Still others are doing seasonal work such as contract jobs in their career areas of expertise.

Strategy 8: Know How Working After Retirement Affects Benefits

If you are planning on working after retirement, there are a few things you should know about how this affects the social security benefits in your retirement strategy.

First of all, if you start receiving benefits before FRA and continue to work, $1 in benefits will be withheld for every $2 earned over the annual limit ($18,240 in 2020). Secondly, if you delay receiving benefits past FRA and continue working, your DRCs will stop accruing once you reach FRA—so if you are still working at 70 and haven’t started receiving benefits yet, it may not be worth it to wait any longer to start collecting them.

Strategy 9: Consider Spousal Benefits

When planning for retirement, it's important to consider not just your own work and earnings history, but also that of your spouse. For married couples, this can have a significant impact on when the best time is to begin receiving benefits. In some cases, it may be advantageous for the higher-earning spouse to delay their benefits so that the other spouse can receive a spousal benefit based on their work history. This can lead to greater financial security in retirement for both spouses. It's important to carefully assess each individual's circumstances and make a decision together as a couple.

Strategy 10: Review Your Benefit Statement Regularly

Staying on top of your social security benefit statement can pay off in the long run. It's easy to let this important document gather dust in a drawer but taking the time to review it regularly can ensure that you have an accurate estimate of your future benefits. This can be crucial for budgeting and retirement planning. And updating any changes, such as additions to your earnings history, can also increase the amount you receive in benefits. So take a few moments to pull out your statement and give it a fresh look. Your future self will thank you for it.

Assistance Club Summary

The #1 Key Idea here: Know Your Options.

By exploring options and strategies, you can create different financial scenarios for your life after retirement. We hope this Senior Assistance Club guide has helped you maximize your social security benefits as part of your retirement strategy!