Are you trying to decide when to start drawing on your Social Security benefits? Knowing what your options are before you make an irreversible decision can really pay off.
It may be surprising to see the number of ways that you can increase your benefits, regardless of whether you take them early, on time, or late. There are several strategies that can provide you with a higher benefit, both now and later, if you play your cards right.
Read on to find out how you can get the most out of your benefits once you are ready to do something with them.
Wait Before Taking Benefits
The most straightforward way to get a higher Social Security benefit is to wait for a few years before you start collecting benefits.
If you are 62 years old, then you can start collecting benefits early. However, you will forfeit roughly a quarter of your benefit for the rest of your life. If you wait until you reach full retirement age to begin collecting your benefit, then you will receive 100% of the benefit that you have accrued from your working years.
What about waiting past your full retirement age? Each year that you delay taking your benefit past full retirement age lets it accrue roughly another 8% per year.
Delaying Benefits Until Age 70
Should you wait until you reach age 70, the maximum age until which you can delay taking benefits, there is a ‘bonus’ of sorts. Your benefit will increase by roughly 32%, and you will receive these benefit payments for the rest of your life.
What if you are planning to work until you reach your full Social Security retirement age or even age 70? Then it can pay off to wait to start collecting benefits until after you stop working.
Your benefit will accrue more. What’s more, you can grow your overall benefit amount by adding these highest-earning years of your career to your earnings record. More on that a little bit later.
If you need to have some income start coming in immediately, then you can suspend your benefit until you reach full retirement age or later. Then for the time being, you can start collecting a spousal benefit.
You will get half of your spouse’s full benefit with this strategy. However, you must have been married for at least a year before you apply. If you are divorced, you must have been married for at least 10 years. If you have remarried, then you are ineligible for this strategy.
In most cases, whichever of you that earned more must start collecting benefits before the spouse can begin collecting benefits. At that time, then the lower-earning spouse can claim spousal benefits.
Prepare for the Tax Man
While once Social Security benefits were tax-free, this is unfortunately no longer the case. Now there are situations in which your benefits may be taxable.
Two separate income thresholds apply for single and married filers who file jointly. The thresholds are broken down as follows:
Single, Head of Household, and Married Filing Separately
If your modified taxable income is at least $25,000 to $34,000 per year, then up to 50% of your Social Security income may be taxable. If your modified taxable income is greater than the high end of this threshold ($34,000), then 85% of your Social Security will become taxable.
Your modified taxable income in this case refers to your combined gross income, half of your Social Security benefits, and any tax-exempt interest that you receive. An example of a tax-exempt source is municipal bonds.
Married Filing Jointly
If your modified taxable income is between $32,000 and $44,000, then up to 50% of your Social Security income may be taxable. 85% of your Social Security is taxable if your modified taxable income is greater than $44,000.
Just as with other filers, the same definition of modified taxable income applies to joint filers as well. Your financial professional can help you explore options that assist in reducing your modified taxable income and overall tax drag on retirement income.
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Balancing Income Needs with Tax Strategies
What if you fall into one of these brackets and still need more income?
Then you may want to consider sources of income that can reduce your overall taxable income. For example, Roth IRA distributions or cash value life insurance policy loans may be some options to explore.
This can help you to lower your taxable income below the thresholds listed above.
Suspend Social Security Benefits
If you can go without your Social Security benefit for now, then consider suspending your benefit until you reach a later age. That way, you can claim a higher benefit later.
There is one major drawback to this strategy. Your spouse and family can’t claim any benefits based upon your payout until you start collecting benefits again. You will need to carefully run some numbers to see how much suspending your benefits will cost your family versus what you can collect at a later age.
Your financial advisor can help you to make these calculations. It’s prudent to let them help you with this. These decisions could mean as much as hundreds of thousands of dollars in lifetime income over the long haul.
Read More: Strategic Tax Planning Moves for Retirement
Work for As Long as You Can
Your Social Security benefit is based upon the highest-earning 35 years of your work history. If you are thinking about retirement but want to increase your overall benefit, you might consider working for a few more years.
You are probably earning more now than you ever did before. You can replace lower-earning quarters with current quarters at your current salary or income level, thus raising your benefit.
If you are able to work until you are 70 years old, then you can collect the maximum possible benefit then and meanwhile have it grow even more. All of the quarters of your coverage were from your highest-earning years.
Maximizing Your Benefits and Income for Retirement
These are the primary ways that you can increase your Social Security benefits. If your benefits aren’t enough to pay for your expenses each month during retirement, then consider other sources of guaranteed income to cover the gap.
Annuities might be an option to look at. After all, they are the only thing besides Social Security that can pay you a guaranteed income for life.
Consult your financial advisor for more information on Social Security claiming strategies as well as annuities and how they can benefit you. With their help, you can increase your Social Security benefits, maximize your retirement income, and enjoy a comfortable lifestyle with more financial confidence.
What if you are looking for a financial professional to guide you through all of this? No sweat, many independent financial professionals are available here at SafeMoney.com.
Use our “Find a Financial Professional” section to get started and connect with someone directly. You can request an initial appointment or quick call to discuss your goals, situation, and explore a working relationship. Should you need a personal referral, please call us at 877.476.9723.