4 Social Security Secrets for Bigger Checks | Smart Change: Personal Finance
A great Social Security check can go a long way toward increasing your financial security in your later years. Although having other income in line with your retirement benefits will be important, you will definitely want to make smart choices to get the biggest Social Security checks you can since this is a guaranteed lifetime source of income.
The good news is that there are four secrets to know so that you can make the best possible choices to maximize your monthly income. Here is the inside information you should be aware of to advance your interest.
1. Delaying claiming your benefits
If you want a larger Social Security check, the best way to do that is to defer the start of your payments. This move alone could increase average interest by about $900 per month.
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The delay pays off a lot because of the way Social Security is designed. You can get benefits as early as your 62nd birthday, but every year you delay until you turn 70 will increase your payments. This increase is due to:
- You can avoid early filing penalties that may be applicable if benefits are claimed before full retirement age (FRA).
- You can earn applicable deferred retirement credits if benefits are claimed after your full retirement age.
Early deposit penalties equal to 5/9 of 1% per month are required for each of the benefits of the first 36 months before your FRA. Adds up to 6.7% annual discount over 12 months. If benefits are claimed more than 36 months before the FRA, an additional penalty of 5/12 of 1% per month applies. This adds up to another 5% annual discount.
Late deposit balance equals 2/3 of 1% per month for any month benefits are waived after full retirement age. They can only be earned until age 70. A full year of these credits will raise your payments by 8%. Full retirement age is determined by year of birth, but for anyone born in 1956 or later, it’s anywhere from 66 years, four months, and 67 years.
These credits and penalties can have a significant impact on increasing (or decreasing) checks. If you have FRA 67 and are entitled to $1,600 in compensation at this age, the checks will decrease to $1,120 if you start at 62 or increase to $1,984 if you wait until 70. If you are aiming for a larger check, the correct course of action should be clear.
2. Work for more than 35 years
Another secret to scoring larger Social Security checks is to put more years into the job if it increases your average wage.
How much you are entitled to at full retirement age depends on your average earnings in the 35 years you earn the most. If you increase your salary over the course of your career – or have had some years where you didn’t earn much because you were unemployed part-time or took time off – working an additional year or more at your current higher salary rate could increase the average wage used in the formula Your advantages.
The years with higher incomes will become part of your average rather than the years when you earn less.
3. Be smart about the retirement account you invest in
An increasing number of Social Security retirees are taxed on their benefits each year because the income threshold at which benefits become taxable at the federal level is not linked to inflation.
Single tax filers with calculated income of more than $25,000 are taxed on a portion of their Social Security benefits, as are married tax filers with calculated income over $32,000. The key word, however, is “countable”. Not all income matters. Half of Social Security benefits do this, plus all taxable income and some non-taxable income.
If you use a traditional retirement account like a 401(k) or IRA, distributions from it will be taxed as part of your calculated income. But distributions from the Roth retirement fund do not count. So if you want to increase the size of your checks by avoiding federal taxes, you may want to consider investing in Roth for your retirement.
4. Choose your retirement location strategically
Finally, you should think about where you want to retire.
If you live in one of the 12 states that tax Social Security, your benefits checks may shrink due to your obligations to your local government. Choose one of the 38 states where Social Security checks aren’t taxed and your payments will be larger because you’ll keep more of your money.
Now you know the four secrets to replacing your Social Security checks. This will prepare you to do everything in your power to make the most income possible as a retiree.
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