How to get 88 percent more from Social Security

Couple’s guide to collecting Social Security
Couple’s guide to collecting Social Security

Need another reason to delay claiming Social Security? An extra year of work could earn you a bigger benefit.

Your Social Security benefit at full retirement age is based on your highest 35 years of earnings. For 46 percent of women and 15 percent of men, working until age 63 instead of 62 replaced a zero-income year in that calculation, according to a new working paper from the Center for Retirement Research at Boston College.

If late-career earnings replace a zero in the calculation of your benefits, you could see an increase in the benefit you're entitled to at full retirement age (aka the primary insurance amount, or PIA). The calculation lets low earners keep a bigger share; every dollar in late-career earnings could increase your PIA by 15 to 90 cents, according to the paper.

"We were really surprised at how many people have zeroes in that top 35, especially women," said study author Matt Rutledge, a research economist at the center.

The big benefit of delaying is in the actuarial adjustment of when you claim Social Security in relation to your full retirement age. Claiming before your full retirement age permanently reduces your benefits; each year you delay from full retirement age until you turn 70 boosts the total by 8 percent.

Someone who retires and begins claiming Social Security at age 70 would receive a benefit that's 76 percent higher than the one he or she would receive at age 62, according to the study. Factor in late-career earnings replacing a zero-income year and the increase becomes as much as 88 percent for women and 82 percent for men.

Women stand to benefit most from working longer because they tend to have more zeroes in their earnings record, said Rutledge. Women work an average 29 years to men's 38, according to an October report from TIAA. They spend an average 5.5 years out of the workforce caring for children, and 1.2 years out as a caregiver for an older adult.

Despite the report, don't rely on working longer to firm up your retirement planning strategy.

"We don't know what lies around the corner," said certified financial planner Nora Yousif, associate vice president at RBC Wealth Management in South Easton, Massachusetts.

You don't always get to choose when you retire, she said. A job layoff, health problems or caregiving for an aging parent could force you out of the workplace earlier than expected.

If you're leaving the workforce midcareer to care for children or an aging parent, keep a hand in the workforce with part-time or contract work if possible, Yousif said.

"When you're looking at the equation, it's far less harm to have a lower-income year than a zero-income year," she said. "As long as you're just making something, that's really the key."

Get a copy of your earnings record from Social Security to see how much impact late-career earnings would have on your benefit, Rutledge said. The working paper only assessed those consumers who stayed in the workforce, he said, which could be those who had the most to gain.

Keep in mind that you might also have access to benefits based on the record of a spouse or ex-spouse, Yousif said. That benefit could already be larger than what you'd be entitled to with a few more work years under your belt.