Social security is one of the most important sources of income for many retirees. Unfortunately, it is a confusing program with a lot of complex rules. This makes it difficult for seniors to maximize their income.
The good news is that there are techniques you can use to get the most money from Social Security. If you’re looking to boost your retirement income, check out these three social security tips from the benefits experts at Motley Fool.
You can redo your deposit
Maurie Backman: You will often hear that it is important to choose carefully the age at which you file for Social Security, because once you sign up you are stuck with the same monthly benefit for life (not counting the annual adjustments to the cost of the social security). life, of course). But the fact of the matter is, if you apply for benefits too early and regret the decision afterwards, you aren’t necessarily stuck with it.
A lesser-known social security rule is that each filer gets only one recovery in their lifetime. If you file for benefits before full retirement age, which narrows them down in the process, but decide it was not the right choice afterwards, you can withdraw your claim and reimburse to the social security administration all the money it paid you. Do this within 12 months of your initial claim and you will have the option of reapplying for benefits at a later date.
In this case, you can decide to claim your benefits at the exact age of your full retirement. Or, you can choose to delay your declaration beyond full retirement age and increase your benefits in the process.
The point is, you aren’t necessarily stuck with the initial monthly benefit you’re locking in. If you are reporting early because you lose your job, but are hired elsewhere three months later, and are able to repay all the benefits you received, then relying on this replacement option might be a smart move.
In fact, the repossession option effectively allows you to use Social Security as a kind of loan. If you need the money temporarily and you think you will be able to repay it within a year, you can apply for benefits earlier and then discontinue your recovery after the fact. There is of course a risk in going this route, but it is nonetheless an option to consider.
A Roth IRA Can Lower Your Social Security Taxes
Katie Brockman: Your Social Security benefits may be subject to both provincial and federal taxes. Whether or not you owe taxes will depend on where you live. Your federal taxes will depend on what is called your combined income.
Your combined income is half of your annual Social Security benefit amount, plus your adjustable gross income and any tax-free interest.
For example, if you collect $ 20,000 per year in Social Security benefits and also withdraw $ 40,000 per year from your 401 (k), your combined income is $ 50,000. Depending on your combined income, you may owe federal taxes on up to 85% of your benefits:
|Percentage of your benefits subject to tax||Combined income for individuals||Combined income for married couples declaring jointly|
|0%||Less than $ 25,000 per year||Less than $ 32,000 per year|
|Up to 50%||$ 25,000 to $ 34,000 per year||$ 32,000 to $ 44,000 per year|
|Up to 85%||Over $ 34,000 per year||Over $ 44,000 per year|
In the previous example, if your combined income is $ 50,000 per year, you will have to pay federal taxes on 85% of your benefit amount.
However, Roth IRA withdrawals do not count towards your combined income.
If you want to reduce or even eliminate federal taxes on your benefits, aim to invest the bulk of your savings in a Roth IRA. If the bulk of your retirement income comes from a Roth IRA, it will lower your combined income and your taxes.
For example, let’s say that instead of withdrawing $ 40,000 per year from your 401 (k) in the previous example, you withdraw that money from a Roth IRA instead. Let’s also say that your benefit amount is still $ 20,000 per year.
In this new scenario, your combined income is only $ 10,000 per year rather than $ 50,000 per year, even though you technically withdraw the same amount each year. This gets you back to the lowest tax bracket and you won’t pay any federal taxes on your Social Security benefits at all.
If you still have a few years to go before retirement and haven’t invested in a Roth IRA, it doesn’t hurt to start putting money in that type of account. Not only are Roth IRA withdrawals not subject to standard income tax, but you can also reduce your Social Security taxes. It’s a win-win solution that can save you a lot of money throughout retirement.
You can increase your benefits by working over 35 years
Christy bieber: The Social Security benefit formula uses the average salary over your career to define your monthly benefit amount. But not your entire career – just the 35 years you made the most money (after adjusting your salary for inflation).
For many people, income increases with age. As a result, if you want the biggest Social Security check you can get, it can pay off to stay at work for over 35 years. See, if you’ve worked exactly 35 years, every year of your work history counts in your determination of benefits – even ones where you may not have earned much.
If you make a lot of money at the end of your career, each additional year you work at your higher salary will bring out one of those low income years. Your average salary over your career will be higher when this happens, and your benefits will increase because of it. And the longer you can stay at work for years when you earn a lot, the more you can increase your Social Security checks.
Working longer also delays claiming Social Security benefits, which can provide an additional annual increase in your income. This is because the amount of your monthly check increases with each year you wait to claim benefits after age 62 (when you become eligible).
Of course, working longer takes some sacrifice – just like taking advantage of other retirement strategies, like a trade-in after your deposit. But you may decide that it’s worth getting a higher monthly Social Security income for the rest of your retirement.
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