Retirement: Don’t leave money on the table

You’ve worked hard for your Social Security. Here’s how to make sure you get the highest payments possible.

Published October 13, 2023

Money wrapped in a rubber band on an orange background

Stocksy

While Social Security was never intended to be our sole source of income, for many Black women it is a financial lifeline. In fact, according to the NAACP in 2017, more than a third of married older African Americans and more than half of unmarried older African Americans depended on Social Security for at least 90 percent of their income.

I could go on for days about the reasons for this. Black women earn 67 cents for every dollar paid to white men, so we’ve had less money to sock away in retirement accounts. We’re caregivers by nature and caregiving is costly. We’re also more likely to outlive Black men, so there’s a good chance we’ll be handling the financial challenges of retirement on one income.

If you worked fewer than 35 years, the years you received no income (and paid no taxes) are calculated as $0. Those zeros, which could have come about if you were laid off, took time off to raise kids, experienced an illness or any other reason, bring your benefit amount down, so consider working until you have 35 years on the books to get the highest Social Security benefit possible.

Since the stakes are so high, “It’s critical to make sure that you maximize your Social Security, particularly if that’s the bulk of what you’ll have,” says Jovan Walker-Jackson, president of Good News Financial & Investment Advisors, an investment advisory firm in Largo, Maryland.

Here’s how to make sure you get every penny you deserve.

Get in enough working years. While you only need to work 10 years to qualify for Social Security benefits, the amount you are entitled to collect is based on your top 35 years of earnings. That means, generally speaking, the more you made over that 35 years the higher your check. However, if you worked fewer than 35 years, the years you received no income (and paid no taxes) are calculated as $0. Those zeros, which could have come about if you were laid off, took time off to raise kids, experienced an illness or any other reason, bring your benefit amount down, so consider working until you have 35 years on the books to get the highest Social Security benefit possible. If you work longer than 35 years, higher-earning years will knock off lower-paying ones, which could also lead to a higher benefit amount. You can get an estimate of how much you’ll be entitled to when you retire by using AARP's Social Security Calculator. You might also consider visiting www.ssa.gov/myaccount and creating a personalized Social Security account.

Take stock of all sources of income. One of the first things you should do when you start planning for retirement is get clear about your financial picture. Do you have a 401(k) account that you’ll be able to draw from? Will your job offer a small pension when you retire? Or will you be depending solely on Social Security? If you’ll have no streams of income outside of Social Security, you may want to work longer in order to get a higher benefit.

According to the Social Security Administration, your benefit would be about 30 percent lower if you filed at age 62 than if you waited until you turned 67. That means if you were entitled to $2,500 per month at full retirement age, you might only get about $1,750 per month if you retire early.

Determine the best time to file. When it comes to figuring out when to file for Social Security, the good news is we have options.

Our full retirement age is the earliest age we can retire and receive our entire Social Security benefit. If you were born between 1943 and 1954, your full retirement age is 66. The age increases gradually until it reaches 67 for those born in 1960 or later. However, we don’t have to wait that long; we can file for retirement as early as age 62, but if you retire early your benefits will be reduced. In fact, according to the Social Security Administration, your benefit would be about 30 percent lower if you filed at age 62 than if you waited until you turned 67. That means if you were entitled to $2,500 per month at full retirement age, you might only get about $1,750 per month if you retire early.

We can also choose to wait and file for Social Security after our full retirement age. Why would we want to do that? It could put more money in our pockets. Each year you delay retirement until you reach the age of 70, your monthly benefit will be about 8 percent more. That means that same $2,500 per month might be $2,700 per month if you retire at 68 and $2,900 per month if you retire at 69. Those extra dollars can add up.

Some people may be better off filing early, such as a person with a lower life expectancy, or someone with enough money socked away that they won’t miss the extra cash.

Once you reach full retirement age, you can work – and earn – as much as you please without having your benefits reduced.

Be true to your own retirement path. When it comes to Social Security, one size does not fit all, Walker-Jackson says. What’s best for your neighbor may not be best for you. For example, your girlfriend may be waiting until full retirement age to collect Social Security because she wants a bigger check, but you may need your benefits now so you can spend more time at home caregiving for a loved one.

One of the worst things you can do is make retirement decisions based on what others have done. When people simply do what they’ve seen others do “they’re using generic advice and they’re really not maximizing their potential benefit,” Walker-Jackson says.

Consider spousal benefits – even if it’s your ex. When you’re married, you can elect to receive Social Security benefits based on your earnings or those of your spouse. If you choose those of your spouse, you could be entitled to up to 50 percent of their benefit. If your spouse earned a lot more than you did or you took time off to raise kids, filing based on their working record might net you more money.

You also may be entitled to benefits based on an ex-spouse’s working record as long as you were married for a minimum of 10 years and you have not remarried. If you’re a widow, you can file for benefits based on your deceased spouse’s record as early as age 60, but the amount would be lower than if you wait until full retirement age. Also, as a widow, you can remarry after age 60 if you want to keep collecting the benefit.

Be strategic about part-time work. Some people decide to take an early retirement and then work part time for extra money. If that’s your plan, make sure you understand the rules. If you have not reached full retirement age, there are limits to how much you can earn before your Social Security benefits are reduced. In 2023, the limit is $21,240. If you earned more than that, $1 would be deducted from your benefit payments for every $2 over the limit. However, once you reach full retirement age, you can work – and earn – as much as you please without having your benefits reduced.

Few would dispute that Social Security can be a confusing topic. That’s why it makes sense to do your research before you actually file. You can also call your local Social Security office to get a list of nonprofit organizations that may be able to help you.

The key is finding out what choices related to Social Security work best for you. “No two people are the same. When you’re factoring in needs, when you’re factoring in other income sources, health, all of these different things, it’s a custom strategy for everybody,” Walker-Jackson says.

Tamara E. Holmes is a Washington, DC-based writer whose work centers on the intersection between health, wealth and happiness.