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Strategies to Help Maximize Social Security Benefits

Social Security seems to go hand in hand with retirement as one of the financial steps in most people’s post-working life. The how and when of Social Security, however, are not one-size-fits-all.

Woman on laptop sitting in living room.

Some people may be surprised to learn that there are different strategies to maximize their Social Security benefits but choosing one can be complicated. Before we dive into those details, let's look at who's using these benefits.

Social Security Dependency

An average of 65 million people per month in the U.S. will receive Social Security in 2021. Nearly 90% are over age 65, and for many retirees, these benefits can be an important part of their financial equation.1

Some financial advisors say you’ll need about 70% of pre-retirement income to live comfortably in retirement, including your Social Security benefits, investments and personal savings.2 But that can vary significantly from person to person based on what you plan to do in retirement.

With many counting on Social Security, it’s good to know the basics and more.

Getting the Most Out of Social Security

For those expecting to rely on these benefits, the next question should be, "How do I maximize my Social Security benefits?" There are a variety of factors to consider, but most center around when to begin collecting benefits. That's important because when you start affects how much you could receive, not only per month, but throughout the remainder of your life, and potentially your surviving spouse’s life.

Here's How It Works

Let's say you were born in 1954. You could have started drawing benefits at age 62. But if you had, you would have locked in monthly payments 25% smaller than if you waited until your full retirement age of 66. If you delay your benefits until you're 70, you could collect 32% more monthly than at age 66.

At first glance, it may appear that waiting is better. However, knowing whether to draw early or wait—and how long to wait—all depends on your personal situation.

Sources:,, both accessed May 2021.

Working and Claiming Social Security

Continuing to work while collecting Social Security may also reduce your benefit if you earn over a certain amount. There are guidelines that account for your age, full retirement age (FRA) for Social Security and other factors. Here's how this looks in 2021:

  • Before you reach FRA: If your earnings exceed $18,960, $1 is withheld from Social Security for every $2 over this earnings limit.

  • Year you reach FRA: The limit increases to $50,520, and $1 is withheld from your benefit for every $3 above that limit. This continues until the month you reach full retirement age.

Earnings for the sake of this calculation include wages earned from working for someone, or net income from self-employment.

Working for an Employer That Doesn’t Pay

If your employer is not required to withhold Social Security taxes from your salary, such as a government agency or a business in another country, any pension plan benefits you receive based on that work may also reduce your Social security benefits if you fall into one of the following categories:

  • The Windfall Elimination Provision affects how the amount of your retirement or disability benefit is calculated if you receive a pension from work where Social Security taxes were not taken out of your pay. A modified formula is used to calculate your benefit amount, which may result in a lower benefit than you otherwise would receive.

  • The Government Pension Offset occurs if you receive a pension from a federal, state or local government based on work where you did not pay Social Security taxes. Some or all of your spouse's, widow's or widower's Social Security benefits may be reduced.

More Paths to “Reduction Junction”

There are other ways you could find your Social Security benefits reduced. It’s important to know your options before filing a claim.

Inflation Adjustments

Both Social Security benefits and Medicare premiums have their own annual inflation adjustments. Medicare health care inflation can be higher than general inflation adjustments most years.

Paying Medicare Premiums: For most retirees, Medicare Part B premiums are subtracted directly from Social Security payments. Depending on how two key inflation provisions work together, it could impact your benefits.

The first provision stipulates that if inflation is negative, Social Security's cost-of-living adjustment (COLA) can’t go lower than 0%. In other words, your existing benefit will never be reduced due to inflation once you begin receiving it.

The second provision is the Hold Harmless rule (officially called the Variable Supplementary Medical Insurance Premium). It states that existing Social Security payments cannot decrease due to rising Medicare Part B premiums. Hold Harmless protects about 70%-75% of Medicare enrollees.

Who’s Not Covered by Hold Harmless

Individuals on Medicare who do not receive Social Security, and individuals who are classified as high income and subject to the income-related monthly adjustment amount.3

The Medicare enrollees not covered by Hold Harmless could see a spike in their Medicare Part B premiums. Since Medicare premiums are calculated to cover 25% of the cost of the Part B program, those who are not held harmless could pay a disproportionate share of the premium increase.

For example, in 2016 the Social Security COLA was 0.0%, but Medicare premiums increased. The Medicare Part B increase could not be applied to over 70% of Medicare enrollees who are eligible for the Hold Harmless provision.

Paying Taxes: Most lifelong workers understand having taxes withheld from their income. However, retirees may not realize the possible tax implications on their Social Security benefits.

A couple with a combined income between $32,000 and $44,000 may have 50% of their benefits subject to their regular tax bracket. The tax rate rises to 85% if they earn more. To ease the burden, you can ask the Social Security Administration to withhold federal taxes from your benefits when you apply.

Calculation for Combined Income

Your adjusted gross income + Nontaxable interest + ½ of your Social Security benefit = Your “combined income”

Past Debt: Private creditors can't touch Social Security, but federal agencies can garnish the benefits. Child support, alimony, back taxes and nontax owed to federal agencies (home and student loan default) can reduce Social Security checks.

Collection Considerations

More Choices for the Married: The amount of your benefit is based on a three-part calculation and an average of the best 35 years of your earnings. That means you may have one spouse with a larger benefit than the other, or they could be eligible for comparable amounts. Either way, when both spouses are eligible for benefits, more variables are added to the draw now/draw later equation.

Let's look at an example with Sam and Kathy, where Sam's benefit is more than double Kathy's. Note this strategy intends to increase Sam's benefit and maximize Kathy’s survivor benefit.

Spousal Benefits Can Boost Your Bottom Line

Kathy, 62, files early for individual benefit at a monthly reduced rate. Sam waits to file at 70 and begins receiving an increased individual monthly benefit. Kathy can now collect her spousal benefit. It Kathy to max survivor benefits if Sam dies first.

When you are eligible for two kinds of benefits, they are not combined but rather compared one to the other. If your own retirement benefit is higher, you receive that amount. If the spousal benefit is larger, Social Security pays your own retirement benefit first, then adds enough of your spousal benefit to make up the difference and match the higher amount. 

Source: American Century Investments. This hypothetical situation contains assumptions that are intended for illustrative purposes only.

More Money for the Married: If you've been married at least 12 months, you can take advantage of spousal options. These are based on the higher wage earner’s benefit amount. For example, if Sam's spouse, Kathy, is eligible for benefits based on her own work history, the choices are either the individual benefit or a spousal benefit, whichever is higher. The spousal benefit can be claimed once the spouse with the higher wages has begun their benefit.

In the event of death, the surviving spouse can collect his or her own benefit or the deceased spouse's benefit, whichever is higher.

Claiming a Lump Sum

An option exists to receive a lump sum benefit payment once you’ve reached FRA, however, there are pros and cons to this strategy.

Getting that first, large check might be great, but it also establishes a smaller monthly benefit moving forward. Analyze this option carefully.

Longevity Is a Factor: One important consideration in deciding when to start benefits is longevity. A person's survival probabilities are dependent upon factors such as family health history, lifestyle and existing medical conditions. The longer you live, the more time you will need to draw benefits. If you expect to live into your 80s, delaying benefits may mean you accumulate more benefits in the long run—up to a breakeven point. Breakeven refers to the age when your total Social Security income from two options reaches the same amount.

Below, we show three scenarios for Sam and Kathy, outlining their breakeven points in relation to their start dates. In this example, if Sam delays benefits until age 70, he'll need to live until age 81 to accumulate the same dollar amount of benefits he would if he started at age 62.

If Longevity Is on Your Side, Later May Be Better (the Reverse Is True Too)

Kathy $700/month, FRA 66. Sam $2,400/month, FRA 66. *Probability of living to ages shown as of age 65. This chart represents an example of accumulated benefits with early filing combined with late filing to increase Social Security benefits.

Kathy $700/month, FRA 66. Sam $2,400/month, FRA 66. *Probability of living to ages shown as of age 65. This chart represents an example of accumulated benefits with early filing combined with late filing to increase Social Security benefits. Results may differ depending on each individual's earnings history. This hypothetical situation contains assumptions that are intended for illustrative purposes only. 
Source: American Century Investments.

Finding Yourself Short on Savings: Drawing benefits early may seem like a clear choice for those with little to no retirement savings. However, remember that starting early means locking in lower benefits. For a person reaching their FRA at 66, every year you can delay allows your benefit to grow incrementally higher. People with little savings may also consider working longer if their health permits, but remember that how much you make can also impact your Social Security benefits.

Do Women Need to Consider Anything Different?

There are factors that may shape how women approach Social Security. For example, women often make less money than men, but rely on Social Security more. And women live longer and can spend more time in retirement.

So even though the Social Security rules for men and women are the same, the strategies for maximizing it may not be. Some tactics include:

  • Making the most of a spouse’s salary difference

  • Taking advantage of spousal benefits—even after a divorce

  • Using survivor benefit

  • Planning for retirement as a couple

Plan Ahead: Benefits Won't Match Previous Earnings

One last, but critical, factor to keep in mind as you plan for retirement: Benefits won't replace what you currently earn. Estimates vary, but generally Social Security may replace around 25%-45% of pre-retirement income depending on your earnings.4 That's less than half of what a person made during their working years.

While Social Security will not replace your current wages, it should be part of your overall retirement planning strategy.

2021 Changes to Know

Check out the changes that were made in 2021—most of which point to benefit increases. However, it's a mix of bright spots and clouds.

Let’s discuss your retirement plan.

Social Security Basic Facts,, accessed May 2021.

Understanding the Benefits,, 2021.

How the Hold Harmless Provision Protects Your Benefits, Social Security Matters blog, November 2020.

Policy Basics: Top Ten Facts about Social Security, Center on Budget and Policy Priorities, August 2020.

This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.