The average Social Security check as of April 2024 was about $1,915 per month. That comes out to $22,980 a year. It’s enough to cover a significant portion of most seniors’ living expenses, but it’s hard to live alone.
Fortunately, you don’t have to settle for mediocre checks if you understand how the government calculates your benefits. There’s a trick that can increase your average earnings by 24% in three years, but it’s not for everyone.
A quick overview of how the government calculates Social Security benefits
Understanding how the government calculates Social Security benefits is essential to maximizing your checks. It starts with determining your Primary Sum Assured (PIA). To do this, the government puts your average monthly earnings, adjusted for inflation, over your 35 highest-earning years into the Social Security benefit formula.
Your PIA is the amount you qualify for at your full retirement age (FRA). That’s between 66 and 67 for today’s workers. But many choose not to claim then. In this case, the government performs an additional calculation that adjusts your benefit up or down, depending on your claim age and your FRA.
When you claim under your FRA, you lose 5/9 of 1% per month for up to 36 months of early claiming. That’s 6.67% for an entire year of early claim. Those who apply more than 36 months below their FRA lose an additional 5/12 of 1% per month (5% per year) from their checks.
How to add an extra 24% to your Social Security checks
You can also grow your checks by delaying Social Security beyond your FRA. You’ll earn 2/3 of 1% per month, or 8% per year, for delaying benefits until you qualify for your biggest paycheck at 70. For workers with an FRA of 67, this allows you to increase your benefit up to 24%. That would add $460 to your checks if you qualify for the average monthly benefit of $1,915 at your FRA of 67.
But this comes with a trade-off. To claim your biggest possible paycheck, you must give up benefits in your 60s. This is not feasible for everyone. If you’ve struggled to save for retirement throughout your career and are unable to work now, you may have no choice but to apply for Social Security early to cover your expenses.
Even if you can afford to delay benefits, it’s not always wise. This strategy can lead to larger monthly checks, but it can reduce your lifetime Social Security benefit if you don’t make it past age 70. Those who believe they have a short life expectancy often get the most by claiming Social Security for as many years as possible.
When you want to be late but you can’t
Deferring Social Security until 70 isn’t realistic for many workers, but that’s okay. You can still use the knowledge above to grow your paychecks a little. We discussed how claiming under your FRA reduces your checks. In other words, delaying your Social Security claim increases your benefit at any age.
You’ll get more per month claiming at 63 than claiming at 62. Even claiming a month later can add $8 to $13 to your average monthly Social Security check. Delaying a little bit beyond your originally scheduled claim date can be a viable alternative to waiting until 70 for those who want to stretch their checks a bit. Think about your life expectancy and how long you think you can afford to delay claiming to guide your decision about when to start Social Security.
What stocks should you add to your retirement portfolio?
The Motley Fool Stock Advisor team of analysts just identified what they believe they are Top 10 Stocks for investors to buy now. The 10 stocks that made the cut could produce monster returns in the coming years, potentially setting you up for a more prosperous retirement.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $704,612!*
Stock Advisor offers investors an easy-to-follow plan for success, including instructions for building a portfolio, regular updates from analysts, and two new stock picks every month. The Stock Advisor service has quadrupled the return of the S&P 500 since 2002*.
See 10 shares »
The Motley Fool has a disclosure policy.
This unused Social Security move will increase the average check by $460 in 3 years was originally published by The Motley Fool
#unused #Social #Security #move #increase #average #check #years
Image Source : finance.yahoo.com