Until the Social Security Act was passed by Congress 83 years ago, financial support for the elderly consisted of employment, individual savings, family, local tax-supported programs, and corporate pensions or state-based programs. Sadly, those solutions were inadequate. State programs were limited, pensions weren't widely offered, jobs were hard to come by for seniors, and because most jobs were in the city, urbanization made family support a challenge.
Today, the risk of seniors falling into poverty is significantly lower than in the past because of guaranteed income from Social Security, but obstacles to financial security still exist that make maximizing Social Security benefits important. Here are three strategies for making the most of your Social Security income.
1. Work at least 35 years
The amount you'll receive in Social Security benefits at your full retirement age is based upon your average monthly income during your 35 highest-earning years, adjusted lower at specific income thresholds called bend points.
If you work fewer than 35 years, Social Security will use zeros in its calculation for those years without earnings, significantly reducing your benefit amount. For example, someone with inflation-adjusted annual income of $40,000 over the entirety of their 35 years earned an average $3,333 per month. However, if their career only included 25 years at $40,000, then zeros for the remaining 10 years would lower their average monthly income over 35 years to $2,381.
That's a big difference. And since that average income, after adjusting for bend points, determines what you can get in benefits at full retirement age, making sure you have 35 years of work history on your record is key to securing the biggest possible payment in retirement.
Today, the risk of seniors falling into poverty is significantly lower than in the past because of guaranteed income from Social Security, but obstacles to financial security still exist that make maximizing Social Security benefits important. Here are three strategies for making the most of your Social Security income.
1. Work at least 35 years
The amount you'll receive in Social Security benefits at your full retirement age is based upon your average monthly income during your 35 highest-earning years, adjusted lower at specific income thresholds called bend points.
If you work fewer than 35 years, Social Security will use zeros in its calculation for those years without earnings, significantly reducing your benefit amount. For example, someone with inflation-adjusted annual income of $40,000 over the entirety of their 35 years earned an average $3,333 per month. However, if their career only included 25 years at $40,000, then zeros for the remaining 10 years would lower their average monthly income over 35 years to $2,381.
That's a big difference. And since that average income, after adjusting for bend points, determines what you can get in benefits at full retirement age, making sure you have 35 years of work history on your record is key to securing the biggest possible payment in retirement.
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