Social security might seem easy to understand when you’re young: you retire, file for benefits, and then receive a check for the rest of your life. However, getting the most from your social security benefits isn’t a straightforward process. When getting ready to retire, your choices influence how much money you receive. These essential tips help maximize your social security benefits:
- Delay Your Benefits
It’s tempting to apply for benefits when you turn 62, but consider maximizing your benefits through strategic claiming decisions. Planning your retirement will lead you to three options for timing your benefits: early claims, on-schedule claims, and delayed claims. Each option has its unique advantages and drawbacks, and you should carefully consider them based on your financial status.
For example, delaying your benefits until you turn 70 can boost your monthly check and reduce your taxes. However, choosing this option means waiting for financial support until later in retirement. On the other hand, if you claim your benefits right away, you’ll get immediate financial assistance, but your monthly check amount will be reduced. Weigh the options and consider what would be most comfortable after retiring.
- Increase Your Earnings
Your lifetime earnings are used to calculate your benefits. The higher your lifetime earnings, the higher your average indexed monthly earnings (AIME) will be. Prioritizing your career development and exploring avenues for personal growth maximize your earning potential. Proactively working to boost your lifetime earnings can lead to greater benefits and financial security later in life.
- Optimize Spousal Benefits
If you’re married, divorced, or widowed, your partner’s work record has the potential for benefits. Pay close attention to the rules and requirements of spousal benefits. If you’re currently married and your spouse earns more, they may choose to delay their benefits to maximize their payments. At the same time, you might consider claiming spousal benefits once you’re eligible. Carefully coordinating a plan could boost benefits for both of you.
- Have a Smart Tax Strategy
It’s easy to underestimate the tax impact on your social security benefits and retirement savings withdrawals. If you’re not careful, overlooking this could lead to up to 85% of your benefits being taxed. To prevent this, note your provisional income after you start claiming benefits. Your provisional income considers your adjusted gross income, nontaxable interest, and half of your social security benefits.
Delaying your benefits until after you retire makes managing your provisional income easier. Postponing them ensures your provisional income stays below the threshold that triggers higher taxes and minimizes the risk toward your savings.
- Investigate Claiming Strategies
Certain strategies help retirees maximize their social security benefits. The first is the “file and suspend” strategy. This strategy allows one spouse to file for benefits and promptly suspend them, so the other can claim spousal benefits. The “restricted application” strategy lets you receive spousal benefits while letting your own benefits grow by waiting to retire. It’s important to see a financial advisor to choose your best strategy. Having professional guidance helps you make the best decision for your unique retirement plan.
Tailoring Your Retirement
Navigating your social security benefits can be difficult. The process requires knowledge of how the system works and how certain strategies align with your goals. Remember that everyone’s circumstances are unique. Speaking with a financial advisor can create a comprehensive plan tailored to you. Considering the right approach and seeking advice can give you peace of mind on your retirement journey.
