If you’re trying to build your retirement paycheck, then learning how to maximize your social security benefits is a great start. Unfortunately, many people don’t even understand how social security really works.
Some claim too early, others miss out on major benefits and don’t implement strategies that could significantly boost their retirement income. In this article, we will be sharing 5 tips on how to maximize your social security benefits at no extra cost.
1. Delay your Claim
Social security retirement benefits will increase by around 5-7% for every year you delay claiming after you attain the claim age of 62 years. In the U.S, the earliest retirement age is 62, and up to 66 years for full retirement.
You get much more if you wait beyond the full retirement age. When you delay past full retirement age you receive credits that will boost your check by 8% for each year you delay claiming up to the age of 70 when the benefit maxes out. Most people who have multiple income streams delay their claims to maximize these benefits.
2. Work for at Least 35 Years
The Social Security admin uses 35 of your highest-earning years when calculating the final monthly benefits that you will be earning after full retirement age. So if you worked less than 35 years, they will use zeroes in the place of your non-earning years.
This means there would be a significant difference in your benefits if you have fewer than 35 working years. However, if you continue working for a few more years, some of the zeroes will get replaced with positive income numbers.
3. Collect Spousal Benefits
You can also collect spousal benefits if both of you have attained full retirement age and allow your own benefits to keep growing. This can be an appropriate option if you either lack sufficient work history that allows you to collect your own benefits, or your spousal benefits are larger than your entitlement.
To qualify for this benefit, you either must be 62 years and above or have a qualifying child under your care – either a minor below the age of 16 or any child who is claiming Social Security disability benefits. You may be eligible for a spousal benefit if you’re divorced, but you need to have been married for at least 10 years, and your ex-spouse never remarried.
4. Beware of Social Security Tax
Do you plan to continue working after you start getting your social security benefits? Well, there are tax consequences to that; - 50-80% of your benefits payments may be subjected to federal tax.
To determine how much of your benefits will be taxed, the IRS will add your nontaxable interest and half of your Social Security income to your adjusted gross income. If the total comes to $25,000 - $34,000 for single filers –or $32,000 to $44,000 for joint filers, then 50% of your Social Security income will be subjected to tax. Up to 85% of your benefits can be subjected to taxes if your income exceeds $34,000 for single filers or 44,000 for joint filers.
You may be able to avoid these taxes by spreading out your income from various sources to avoid triggering higher taxes. For instance, if you have a 401(k), don’t take out too much of it in a single year.
5. Fix an Early Social Security Benefits Mistake
As mentioned earlier, claiming your Social Security benefit too soon can cost you, and you may miss out on several benefits. If you already filed and you wish you would’ve waited, there are two ways you can remedy this situation and boost your future benefits;
Use a Do-Over
If you realize within 12 months of starting your claim that it was too early, you can undo this, but you will have to pay back the benefits you received within that time. This will allow you to start over at a later stage without paying any penalties.
If more than 1 year down the line you realize that you claimed your benefit too early, you can still increase your future claims by suspending your current claims. This is however only available after you’ve attained full retirement age. Keep in mind this will also stop any other payments and benefits payable from your accounts such as a minor child or spouse.
The Bottom Line
Social Security benefits form a critical part of your retirement planning. There is a chance you’re entitled to much more than you think. Try implementing a combination of the above strategies to boost your monthly income when you start claiming your benefits.