Question:

Is there anything I can be doing now in my working years to help increase my future Social Security benefit?

Response:

The following response is from Nora Yousif, a financial advisor with RBC Wealth Management. She is happy to be a financial planning resource for those with follow-up questions. She can be reached at nora.yousif@rbc.com or at 508.230.8960.

Well yes. Aside from the obvious answer of earning more up to the maximum Social Security wage base (which for 2022 is $147,000), there are two other considerations.

The first consideration is for business owners and 1099 professionals like real estate brokers. Many of these professionals have flexibility in how much income they claim after expenses are paid and therefore how much they pay into FICA. These are also the same professionals who I meet with in their 60s that are displeased by how small their Social Security benefit will be because of their modest reported earnings during their career. As a solution, consider claiming more now in your working years so you can increase your lifetime guaranteed government backed annuity, aka your Social Security benefit.

The second consideration is for new parents, particularly mothers. I routinely have couples coming in for their retirement reviews and the wife is often surprised to learn her benefit is drastically lower than her husband’s benefit, despite her comparable earnings history. The difference is usually due to the years moms (or dads) work at home raising the children. Your Social Security benefit is based on your 35 highest earning years and a zero income year in any one of those 35 years significantly brings down your Social Security benefit.  As a solution, I urge new parents to try to keep a hand in the workforce, even if it’s part-time and for little pay. It’s better to have a low-income year instead of a $0 income year when it comes to the Social Security calculation, which carries a heavier weight on the first $895 of income you earn on average a month. If it’s too late and you’ve already taken the years off, consider continuing to work part-time after retirement so you displace your zero income years.

RBC Wealth Management does not provide tax or legal advice. All decisions regarding the tax or legal implications of your investments should be made in connection with your independent tax or legal advisor. The opinions expressed in this report are those of the author and are not necessarily the same as those of RBC Wealth Management or its research department

RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.

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