President Franklin D. Roosevelt signed the Social Security Act into law 83 years ago, on Aug. 14, 1935, creating the first nationwide safety net for American retirees.
During a recent summer road trip, I visited Roosevelt's bucolic Hyde Park retreat in New York's Hudson River Valley and was awed to stand in the footsteps of history. It was the home where the 32nd president welcomed King George VI at the controversial "hot dog summit" in 1939, prior to America's entry into World War II. It was also where FDR signed a pact with British Prime Minister Winston Churchill to build an atomic bomb that would end the war.
As pensions disappear and longevity increaseas, retirees are even more dependent on Social Security today than they were 25 years ago, according to a new study from the University of Pennsylvania's Wharton School of Business.
In honor of Social Security's more than eight decades of helping Americans create a secure retirement, here are eight ways that clients may be able to increase their benefits.
1. Work longer. Social Security benefits are based on the top 35 years of average indexed earnings. If recent earnings replace prior years of lower indexed earnings used in the 35-year calculation, your future benefits could increase, no matter how old you are.
2. Avoid the earnings cap. Retirees and survivors who choose to claim Social Security before they reach full retirement age and who continue to work are subject to an earnings limit. In 2018, the limit is $17,040 for anyone who is under full retirement age for the entire year. If they earn more than that, they forfeit $1 in benefits for every $2 earned over $17,040. A higher limit applies in the year an individual reaches FRA in the months before his or her 66th birthday. In 2018, the limit is $45,360 and individuals would lose $1 in benefits for every $3 earned over that limit. The earnings cap disappears at FRA and any benefits lost to the earnings cap would be restored in the form of higher monthly benefits going forward.
3. Delay claiming benefits. For every year that a worker postpones claiming retirement benefits beyond full retirement age up to age 70, benefits increase by 8% per year. The difference between claiming reduced benefits as early as possible at age 62, when they would be worth 75% of the FRA amount, versus maximum benefits, worth 132% of FRA amount at age 70, represents a 76% increase in Social Security income for life.
4. Claim spousal benefits if eligible. Millions of married couples, and in some cases divorced spouses, who were born before Jan. 2, 1954, are still eligible to claim only spousal benefits at age 66, allowing them to collect half of their spouse's (or ex-spouse's) FRA benefit amount while their own retirement benefits continue to grow. At 70, they can switch to their maximum benefit.
5. Survivors can switch benefits. Surviving spouses and surviving ex-spouses who were married at least 10 years before divorcing may be able to claim both their own retirement benefits and their survivor benefits, but not at the same time. Depending on the relative amount of the two benefits, they could claim one type first and switch to the other, larger benefit later. Survivor benefits are worth the maximum amount if claimed at the survivor's full retirement age or later because they do not qualify for delayed retirement credits. But retirement benefits continue to grow by 8% per year up to age 70.
6. Claiming benefits can be a family affair. When a parent of a minor dependent child or a permanently disabled adult child claims Social Security retirement or disability benefits, the children are also entitled to 50% of the parent's FRA benefits, subject to family maximum benefit limits. Children, adopted children, stepchildren and in some cases, grandchildren qualify for dependent benefits.
7. Annual cost-of-living adjustments help maintain purchasing power. One of the most important aspects of Social Security is that benefits are increased to keep pace with inflation. In 2018, benefits rose by 2%, boosting the average retirement benefit by about $27 per month and increasing the amount of wages subject to payroll taxes, which fund Social Security benefits, to $128,400 per year. The 2019 COLA, which will be announced in October, is expected to be even larger.
8. Public employees can boost their future Social Security benefits by working in private-sector jobs. Public sector employees in a dozen states do not pay FICA taxes. But many of them may be eligible for reduced Social Security benefits based on their work in the private sector. By working more than 20 years and earning "substantial wages" in covered employment, they can reduce the impact of the Windfall Elimination Provision, which can cut their Social Security benefits in half.