Who doesn't want more money in their monthly check? Most people do – before and after retirement. Fortunately, there are a few ways in which you may see an increase in your check even after you've begun to draw retirement benefits.
Continuing to Work – Your Social Security benefits are calculated from the 35 highest annual incomes through your working career (indexed for inflation). If you don't have 35 years with significant income, you can continue to work while drawing benefits and replace a zero- or low-income year with a higher number. Check your work history at any time by creating a My Social Security account and signing in to check details.
As you weigh your options, remember that up to 85% of your Social Security benefits become subject to taxes if you pass specific income thresholds.
Earnings Limit Adjustment – If you decided to claim benefits before your full retirement age (FRA) but continued to work, your benefits may have been reduced if you exceeded earnings limits. For 2018, the earned income limit is $1,420 per month. In the calendar year of your FRA, the limit is $3,780 per month.
When you reach FRA, any benefit reductions due to the earnings limit will be restored to your monthly benefits and spread out over several years. Note that this only applies to earnings limit reductions – not the permanent reduction from claiming benefits early.
Cost of Living Adjustment (COLA) – Your payments may automatically increase each year as the result of an annual COLA. Introduced to Social Security benefits in 1975, COLAs are intended to counteract inflation and keep the purchasing power of your benefits constant over time.
COLAs are calculated based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), one of the national inflation standards calculated by the Bureau of Labor Statistics (BLS). The COLA for any year reflects the percentage difference in the third quarter CPI-W of the previous year and the third quarter CPI-W of the last prior year when a COLA took effect.
For four out of the last nine years, COLAs have been zero due to low inflation. COLAs cannot be negative – if prices go down, your benefits are not decreased.
The COLA for 2018 payments was 2.0%. The CPI-W is currently on a pace to top that mark for 2019 payments, trending toward 3% – but third-quarter numbers are the only 2018 numbers that matter.
Keep in mind that even when your benefits increase, you don't always see that increase reflected in your check. For example, if your Medicare Part B premiums are paid out of your Social Security benefits and the premiums increase by at least as much as the COLA, your increased benefits will be consumed by Part B payments and your check will stay the same.
Of the three methods listed above to increase your Social Security benefits, only one is the result of actions you can take post-retirement – additional work that replaces a low-income year. This fact illustrates the importance of optimizing Social Security benefits before you retire.
Check your employment record at the SSA well before retirement age to verify there are no errors that will reduce your monthly benefits and know your expected benefits prior to retirement. Decide when to draw your benefits as part of an overall retirement income plan based on your retirement goals and expected expenses.
If you must increase monthly benefits to meet your goals, take steps before you retire – while you have more options to make a change.
People with better credit can save more for retirement because they pay less in interest. You can check your credit score and read your credit report for free within minutes by joining MoneyTips.