This Social Security Strategy Is the Real Deal When It Comes to Increasing Retirement Income


Numerous surveys confirm that many Americans are falling behind on their retirement savings. That is not a pleasant state of affairs. Without sufficient savings, you’re likely to wonder when you’ll be able to retire and what type of lifestyle you’ll be able to maintain once you leave the workforce.

While padding your savings is critical in this scenario, there is an additional strategy to consider. It entails boosting your Social Security benefits. Increased Social Security benefits entitle you to lower annual withdrawals from your retirement account. And depleting your savings each year should help you stay solvent for a longer period of time.


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Social Security Overview

You can increase your benefit under current Social Security rules by increasing your average income. This is not a simple fix. It is a strategy that works when given sufficient time.

Social Security calculates your benefit based on your average monthly income for the 35 years in which you earned the most money. Take note of two points regarding this calculation:

If you have worked less than 35 years, Social Security deducts no income for the years you have not worked.

Social Security adjusts your wages for inflation prior to calculating your 35-year average. Thus, if your raises have not kept pace with inflation, your income from, say, 25 years ago may be roughly equivalent to your income today.

To determine this, divide the current year’s national average wage index by the prior year’s national average wage index. Then multiply the result by your previous year’s earnings. The answer is the equivalent of that prior year’s earnings in the current year. If the answer is greater than what you earn today, your inflation-adjusted income has decreased rather than increased.

With these two points in mind, there are three ways to increase your average income, which results in an increase in your Social Security benefit. You can extend your work history to 35 years, advance to a higher-level position, or work part-time in your spare time.


1. Work for a period of at least 35 years

If you have a shorter work history than 35 years, reaching that 35-year mark naturally increases your average income. This is because you’ll be substituting higher values for the years with no income in the average income calculation.


2. Advance your career by obtaining a higher-level position.

A straightforward merit increase in your current position may have little effect on your retirement benefit. What you want is a pay increase that is sufficient to keep up with wage inflation. This may necessitate a promotion.

The good news is that a promotion-related compensation increase increases your income this year and, hopefully, in all future years. The longer you work at a higher pay scale, the greater the impact on your retirement benefit.

Additionally, you can use the additional revenue to increase your retirement contributions.


3. Include earnings from part-time work.

Adding part-time work to your routine is frequently easier than obtaining a promotion. With expertise in a particular field, for example, you may be able to secure consulting or contracting work. Alternatively, you could earn extra money by working for a ride-sharing company, gardening, or handyman services.

Whether you work for yourself or in a traditional part-time job, you must report the additional income on your tax returns. Self-employment taxes are levied on all self-employment income.

As with obtaining a promotion, the sooner you implement this strategy, the greater the potential benefit to you.


Estimating the potential increase in your benefit

Social Security offers a variety of tools for estimating your retirement benefit at various income levels. The most accurate is my Social Security’s benefit estimator. Your expected benefit is calculated by the estimator based on your reported income history.

Additionally, the estimator assumes that your average annual salary in the future will be equal to what you earned in the previous tax year. You can manually modify this value to obtain an updated estimate. Experiment with various future income assumptions to determine the amount of income required to generate the desired retirement benefit.

Extending your career, obtaining a higher-level position, or working additional hours entails obvious trade-offs. Calculating the potential increase in your Social Security benefit may assist you in determining whether those trade-offs are worthwhile.


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If the trade-offs aren’t worth it, you might consider developing a passive income stream to supplement Social Security and distributions from your savings. Alternatively, you could downsize now to reduce your future income requirements. Additionally, this would free up additional funds to contribute to your retirement account.

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