Social Security: Essential Tips To Maximize Your Benefits.
When Social Security was introduced, it was never meant to be the main pillar of retirement income. Its primary role was to serve as a safety net for those who found themselves without sufficient retirement savings.
For decades, the importance of social security benefits didn’t receive much attention. Life expectancies were shorter and robust pension plans were the norm.
Today things are very different. People are not only living longer, but also, workplace pension plans are no longer as common. Data from the Bureau of Labor Statistics indicates that as of 2023, only about 19% of workers are enrolled in workplace pension plans. This means that for the overwhelming majority, the responsibility of retirement savings has shifted squarely onto their shoulders.
While numerous strategies exist to maximize Social Security benefits, many are intricate and case-specific. Here are some essential tips that everyone should know to enhance the size of their future Social Security checks.
Delay Your Benefits.
The simplest way to boost your Social Security benefits is to delay claiming them. You become eligible for Social Security at age 62 but claiming benefits before your Full Retirement Age (FRA) results in a permanent reduction of nearly 25% to 30% depending on your full retirement age.
If you wait until you hit your Full Retirement Age (FRA), you’ll receive 100% of your earned benefits. But if you can wait until age 70, your benefits grow even more. Each year you delay, your monthly benefits increase by 8% per year. Cost-of-living adjustments will be included as well, so you don’t forgo those by delaying. The 8% per year is simple interest, however, you’d be hard-pressed to find a better risk-free return anywhere else.
Should an untimely death occur, having delayed Social Security benefits can provide a significant benefit to your spouse. For example, a high-earning spouse who postponed their benefit ensures a substantial increase in the survivor benefit for their lower-earning spouse if they pass away first. This increase of up to 32% could make a big difference.
Work the Full 35 Years.
Social Security calculates your benefit based on your 35 highest-earning years. If you work fewer than 35 years, zeros are factored into the calculation, lowering your benefit. Working more than 35 years can also be beneficial if higher earning years replace lower earning years in the calculation.
Maximize Your Earnings.
Your Social Security benefit is directly tied to your earnings history – the higher your income, the greater the potential benefit. Some pre-retirees may look for ways to boost their income, such as part-time work or creating business income. Conversely, reducing work hours, or transitioning to semi-retirement without considering the implications can inadvertently lower your lifetime benefit.
Earnings exceeding $168,600 for 2024 don’t count toward the Social Security calculation. Additionally, income earned past the age of 60 is not indexed, which can be advantageous and replace a year in which there were zero or lower earnings.
For self-employed individuals, it’s important to report all income to maximize your benefits.
Avoid Social Security Taxes.
Working during retirement can supplement your income but also have tax implications on your social security benefits.
A portion of your benefits, ranging from 50-85% may be taxed depending on your total income. The IRS calculates this by combining your non-taxable interest, half of your Social Security benefits, and your adjusted gross income. For single filers, if the sum is between $25,000 and $34,000, or for joint filers, between $32,000 and $44,000, up to 50% of your Social Security may be taxed. Above these thresholds, up to 85% could be taxable.
Utilizing tax planning strategies such as Roth conversions, can help manage the taxation of your benefits.
Check Your Earnings Record.
Your Social Security earnings record is a history of your income that’s been reported to the Social Security Administration (SSA). You can create a My Social Security account and download your Social Security statement annually to review the information.
It’s good practice to check your reported earnings against your W-2 form, tax return, or pay stub.
Maximize Survivor Benefits.
In the event of a spouse's death, the surviving partner may receive survivor benefits, potentially inheriting the higher Social Security payment of the deceased. For instance, if a husband's monthly benefit is $2,000 and his wife's is $1,500, she could receive $2,000 upon his death.
Surviving spouses also may have the option to claim the deceased's benefit while their own benefit accrues value, switching to their own higher benefit later.
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