4 Social Security Secrets to Even Bigger Checks | Smart Change: Personal Finances
A large Social Security check can go a long way to boosting your financial security in your later years. While it’s important to have other income to go along with your retirement benefits, you’ll definitely want to make wise choices to get the biggest social security checks possible, because that’s one source of income. lifetime warranty.
The good news is that there are four secrets you need to know so you can make the best choices possible to maximize your monthly income. Here is the insider information you should know to increase your benefits.
1. Delaying your claim for benefits
If you want to get a bigger Social Security check, the best way to do that is to defer the start of your payments. This move alone could increase the average benefit by about $900 per month.
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Delaying pays off because of the way Social Security is designed. You can collect benefits as early as your 62nd birthday, but each year you delay until age 70 will cause your payments to increase. This increase comes because:
- You can avoid early deposit penalties that would apply if benefits were claimed before full retirement age (FRA).
- You can accrue applicable deferred retirement bonuses if benefits are claimed after full retirement age.
Early deposit penalties equal to 5/9 of 1% per month for each of the first 36 months of benefits are claimed before your FRA. These are in addition to an annual reduction of 6.7% over 12 months. If benefits are claimed more than 36 months before the FRA, an additional penalty of 5/12 of 1% applies monthly. This represents another annual reduction of 5%.
Late filing credits are 2/3 of 1% per month for any month benefits are forfeited after full retirement age. They can only be earned up to the age of 70. A full year of these credits will increase your payment by 8%. Full retirement age is determined by year of birth, but for anyone born in 1956 or later it is between 66 and four months and 67.
These credits and penalties can have a dramatic effect on increasing (or decreasing) checks. If you have a 67-year-old FRA and would have been entitled to a $1,600 benefit at that age, you will reduce your checks to $1,120 if you started them at age 62 or increase them to $1,984 if you waited until 70 years. If you’re aiming for greater control, the right course of action should be obvious.
2. Working for more than 35 years
Another secret to scoring bigger Social Security checks is to spend more years on the job if it increases your average salary.
The amount of money you are entitled to at full retirement age is based on your average earnings during the 35 years you earned the most. If you’ve increased your salary over the course of your career — or if you’ve had years when you didn’t earn much because you were unemployed part of the time or took time off — work a additional year or more at your current higher rate of pay may increase the average salary used in your benefit formula.
The years with the highest earnings will be part of your average instead of the years when you earned less.
3. Be smart about the retirement account you invest in
A growing number of Social Security retirees are subject to tax on their benefits each year because the income threshold at which benefits become federally taxable is not indexed to inflation.
Single filers with book income over $25,000 are taxed on a portion of their Social Security benefits, as are married joint filers with book income over $32,000. The key word, however, is “countable”. Not all income counts. Half of Social Security benefits do, plus all taxable income and some non-taxable income.
If you used a traditional retirement account such as a 401(k) or IRA, distributions from it will be taxed as part of your accounting income. But distributions from a Roth retirement fund don’t count. So if you want to fatten your checks while avoiding federal taxes, you might want to consider investing in a Roth for your retirement.
4. Choose your retreat 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 benefit checks could decrease due to your obligations to your local government. Opt for one of the 38 states where Social Security checks are not taxed and your payments will be larger since you keep more of your money.
Now you know the four secrets to supersizing your Social Security checks. This will allow you to do all you can to generate as much income as possible as a retiree.
The $18,984 Social Security premium that most retirees completely overlook
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