Maximizing Your Social Security Benefits: What You Need to Know

Imagine a lifetime of strategic financial planning only to leave thousands of dollars on the table every year during retirement — unfortunately, that’s exactly what many Americans unknowingly do by mismanaging their Social Security benefits.

Recent reports reveal that in 2024, almost 68 million Americans will receive some form of Social Security benefit per month, resulting in the Social Security Administration (SSA) paying out $1.5 trillion throughout the year. Additionally, statistics show that approximately 97 percent of adults aged 60 to 89 currently receive Social Security benefits or will receive it at some point. 

These statistics prove that Social Security benefits can contribute to retirement income for many U.S. workers. However, many Americans don’t know enough about maximizing Social Security to make it a key component in their retirement planning strategy. 

Social Security Eligibility and Benefits: Understanding Your Entitlements

Knowing how the Social Security program works and how to maximize its benefits can significantly impact your financial stability during retirement. Before diving into optimization strategies, it’s crucial to understand the basics of Social Security eligibility and benefits. Typically, U.S. workers need at least 40 work credits (equivalent to 10 years of work) to qualify for Social Security benefits. 

According to SSA.gov, the earnings required to earn a credit may change each year. However, “in 2024, you earn 1 Social Security and Medicare credit for every $1,730 in covered earnings each year. You must earn $6,920 to get the maximum 4 credits for the year.” And while many Americans may earn more than the minimum number of credits needed during their lifetime, these extra credits do not increase the benefit amount. 

Your benefit amount is calculated based on the average of your highest 35 years of earnings — not the total number of credits you earn. The SSA adjusts these earnings for inflation based on a cost-of-living-adjustment (COLA) and applies this formula to determine your Primary Insurance Amount (PIA) — the benefit you’re eligible for at your full retirement age. The maximum benefit for someone retiring at full retirement age in 2024 is $3,822 per month.

Other things to know about eligibility and benefits include: 

Full Retirement Age (FRA)

Your FRA depends on your birth year. If you were born:

• Between 1943 and 1954, your FRA is 66
• Between 1955 and 1959, your FRA increases gradually to 66 and 10 months
• In 1960 or later, your FRA is 67

Early Retirement

You can start receiving benefits as early as age 62. However, this will permanently reduce your monthly benefits. The reduction depends on how early you claim relative to your Full Retirement Age:

• At age 62: Your benefit is reduced by about 30% (for those with an FRA of 67)
• At age 63: Reduction of about 25%
• At age 64: Reduction of about 20%
• At age 65: Reduction of about 13.3%
• At age 66: Reduction of about 6.7%

For example, if your full retirement benefit at age 67 would be $1,000 per month, claiming at age 62 would reduce it to about $700 per month for life. It’s important to note that these reductions are permanent and will affect your benefit amount for as long as you receive Social Security. The decision to claim early should be carefully considered based on your individual financial situation, health, and life expectancy.

Delayed Retirement

Delaying benefits beyond your FRA increases your monthly benefit by a certain percentage until you reach age 70.

Optimization Strategies: Maximizing Social Security Benefits

There are several strategies to optimize your Social Security benefits, ensuring you get the most out of what you’ve earned. Some things to consider when retirement planning include: 

Delay Claiming Benefits

One of the most effective ways to maximize your benefits is to delay when you will claim them. You can start receiving benefits as early as age 62. However, you will permanently reduce the monthly benefit if you claim it before your full retirement age. By waiting until your FRA to claim benefits, you’ll receive 100% of your PIA. Additionally, for every year you delay past your FRA, your benefits increase by about 8% until age 70. For instance, if your FRA is 66 and you delay until 70, you could see an increase of up to 32%, making this an optimal strategy if you plan to continue working past your FRA, or if you don’t need the income quite yet. Depending on benefit amounts, ages, and other factors, it could also be ideal for one spouse to delay benefits while the other files at their FRA.

Consider Spousal Benefits
If you are married, you may be eligible to receive spousal benefits. A spouse can receive up to 50% of the other spouse’s full retirement benefit if claimed at full retirement age. This strategy is particularly beneficial if one spouse has significantly lower lifetime earnings.

Work Longer/Earn More

Since your benefit is based on your 35 highest-earning years, continuing to work and earn a higher salary can boost your Social Security payment. Higher lifetime earnings result in higher average indexed monthly earnings (AIME), which is used to calculate your benefit amount.

Use the Social Security Calculator

The SSA offers a variety of online calculators to estimate your future benefits based on different scenarios. Utilizing these tools can help you make informed decisions about when to claim your benefits.

Common Pitfalls: Mistakes to Avoid When Maximizing Social Security Benefits

While planning for Social Security benefits, it’s essential to avoid common mistakes that can reduce your retirement income, such as:

Claiming Too Early

Many retirees claim Social Security benefits as soon as they are eligible at age 62. While this provides early access to funds, it permanently reduces monthly benefits by as much as 30%. While claiming early might be necessary for some, it’s important to carefully consider the long-term implications.

Not Understanding or Ignoring the Earnings Test

If you claim benefits before your FRA and continue to work, your benefits may be temporarily reduced based on your earnings. For 2024, $1 in benefits will be deducted for every $2 earned above $21,240.

Ignoring Tax Implications

As already mentioned — up to 85% of your Social Security benefits can be taxable depending on your total income.Working with a financial professional to plan for these taxes is essential to avoid surprises or disruptions to your retirement income.

Not Checking Your Earnings Record

The SSA calculates your benefit based on your earnings record. Errors in this record could result in lower benefits. Check your Social Security statement regularly and report any discrepancies.

Forgetting About Spousal and Survivor Benefits
If you’re married, divorced, or widowed, you might be eligible for benefits based on your spouse’s (or ex-spouse’s) record. It’s important to note that if you file for your own benefits prior to your FRA, any other benefits you receive later, such as spousal benefits, may be permanently reduced as well.

Don’t overlook these potential sources of income.

Failing to Consider Impact on Other Retirement Income

Social Security benefits can affect your overall retirement income strategy, including how much you withdraw from retirement accounts and how your benefits are taxed. Additionally, some workers receive a reduction in their Social Security benefit if they receive a government pension. It’s crucial to understand how your retirement income sources work together when developing a holistic retirement plan.

Maximizing Social Security Benefits: Start Early 

Maximizing your Social Security benefits requires understanding the rules and options available as well as a strategic planning approach. Here are a few final tips to consider when navigating the complexities of the program:

Plan Early
Start considering your Social Security options well before you plan to retire.

Seek Professional Advice
One of the best ways to optimize benefits is to work with a financial advisor. Financial planners can provide personalized advice based on your individual circumstances. They can also work with you to understand the long-term impact of different claiming strategies to ensure you make informed decisions that support your financial goals. 
Stay Informed
Social Security rules can (and often do) change, so staying up-to-date with the latest information is crucial.

Schedule an Appointment With a Destiny Capital Professional Today

Destiny Capital can help develop a financial planning strategy that considers Social Security benefits as part of your retirement income. Contact us today to schedule an appointment with one of our experienced financial professionals. We’re here to help you create a personalized financial plan that helps navigate Social Security complexities and help you make the most of your retirement.