Social Security Rules That Can Drastically Increase Your Monthly Benefits

Everyone has at least a fleeting understanding of how Social Security benefits work in the United States. You spend your working years paying your taxes, and when you retire, the government will provide you with a monthly check. It's a promise that contributing to society and the economy, and following the rules throughout your working life will be rewarded with something in return. Now, it's essential to note that Social Security benefits should never be your only financial plan for funding a fully functional retirement. It's important to set aside capital on your own as you go through your working years to create a nest egg that'll last. Social Security is a great benefit, but it's not going to cut the mustard for most retirees if it's acting as the only leg of the table.

Social Security payments become even more important when it comes to planning how and when you'll start drawing them. People who have turned 62 can begin taking Social Security benefits, but this choice will come at a reduced rate (a 30% reduction compared to "full retirement" benefits at 66 or 67, dependent on your birth year). Some aspects of the Social Security math remain difficult to understand for even the most astute savers, but knowing a few key rules can change that. On top of that, it's a good idea to acquaint yourself with figures like the income you'll need to max out your Social Security checks (it's $168,600 for 2024).

The first rule that every person nearing retirement needs to know is that Social Security benefits increase the longer you wait to claim them. At 62, you'll be entitled to a payout equating to 70% of your "full retirement" benefit. At 63, this rises to 75%, it hits 86% at 65, and is only 7% off the mark at 66 for those who arrive at full retirement age the next year (i.e., 93% of the full benefit amount). Therefore, the longer you wait to start drawing on your Social Security benefits, the higher your monthly check amount will be. It's simple stuff, but it's not something everyone will be prepared to fully strategize around. Even with the Social Security Administration's retirement estimation and calculation tools (meaning you don't necessarily need to speak with an investment professional), plenty of people go into this stage of life winging it.

Another thing to consider is the potential benefit of waiting to take your Social Security until a year or more after you reach full retirement age. Delaying your retirement can be a positive decision for a number of reasons, but specifically opting to wait to claim Social Security benefits comes with its own positive feature. While claiming benefits early results in a reduction, claiming late provides a boost. If you wait until you're 70, you'll receive a 124% payout (with an 8% jump each year after 67). There's no additional benefit tacked on after 70, though, so you won't want to wait any longer than this.

It's generally thought that once you claim your Social Security benefits, the decision is final and everything flows from there. This can lead those nearing retirement to really slave over the decision to start taking benefits at 62, 65, 67, or perhaps later. It's such an important choice that you won't want to get it wrong and have the selection haunt you for the rest of your retirement life, right?

It turns out there's actually a sneaky and little-known rule that allows you to rethink your decision and make a critical U-turn on your Social Security, if necessary. The Social Security Administration allows for people to amend their benefits start date one time, and only if the decision to start taking benefits was made before reaching full retirement age. This means that a person who thought taking their benefits early was a good idea, and then later had a change of heart, can erase this choice and reset the clock for themselves.

The Social Security Administration offers Form SSA-521 for this exact purpose. To apply for a "request for withdrawal of application," you must have submitted the form within 12 months of your benefits being approved (so there's a relatively short window in which you can reverse your course, but it's not minuscule), and pay back any money you've received in benefits, including withheld Medicare premiums you may have benefitted from.

Another approach people around retirement age might consider is the suspension of their Social Security benefits. If you're taking Social Security payments and still working, you might be on the hook for a larger tax burden than expected. If for some reason you don't want to reset the clock on your benefit reduction factor (e.g., perhaps you've already taken and used a considerable sum of money, or you've waited for too long and the 12-month window has expired), you can opt for a different Social Security trick.

Suspending your benefit payments won't change your reduction factor, but it will allow you to continue earning credits toward your overall retirement benefit value. This particular rule can raise the payout amount, even though it doesn't change the multiplier attached to your Social Security checks.

If you decide to keep on working long after full retirement age, and don't need the money in the present, suspending your benefits can allow you to continue adding to your contribution history and boost the amount you're entitled to when you ultimately do decide to start up benefits payments again. This can improve the value of your monthly Social Security payments by as much as 24%, virtually eliminating nearly all of the total possible reduction amount through a different avenue.