Stop Guessing: Here’s Exactly How To Maximize Your Social Security
If you want more security in retirement, it’s best to maximize your Social Security benefits. If you don’t know how, the good news is you don’t have to guess.
If you follow these five steps, you will get the greatest possible benefit for your situation.
1. Earn as much as possible throughout your career
Social security benefits are based on your average income. So if you earn more you will get more benefits. This is only true up to a point, however, as there is an annual “base salary limit” which is $ 142,800 in 2021. If you earn more than that, you are not taxed on. additional income and it will not count in determining your average income.
Of course, it’s simple to suggest earning more, but not so easy to achieve. Steps you can take to increase your income include negotiating your salary and increases, improving your job skills, or hiring a side job to supplement the income from your day job.
2. Work for at least 35 years
Although the benefits are based on average earnings, there is a caveat. Only 35 years of income count.
Social Security adjusts your wages for inflation and calculates the average monthly wages for the 35 years when your earnings were highest. If you haven’t worked for 35 full years, your average will be reduced because you will have a few years of $ 0 pay included in your calculation.
Of course, if you work over 35, that means some years of work don’t count. If you spend more years at a higher salary, fewer years at low income will end up in your average.
This means that if you earn more towards the end of your career, you will want to work over 35 to maximize your benefits. If your pay has gone down, however, staying at work for more than 35 years will have no effect on benefits, since your current low-income years simply won’t count towards your average.
3. Wait until age 70 to claim your benefits
The average salary is not the only important factor in maximizing your benefits. Your average salary determines your Standard benefit, but you only receive this amount if you apply for Social Security at a designated age called “full retirement age” (FRA).
If you want your checks to start before FRA, you will need to accept a reduced benefit due to early deposit penalties. But if your goal is to maximize your benefits, you will have to wait for benefits long after your FRA, especially until age 70.
This is because older people who wait after FRA get deferred retirement credits, which can be accumulated until then. These continuously increase your benefits for each month you are late.
4. Invest in Roth retirement accounts
You can also maximize the amount of your benefits by making sure you don’t have to pay federal tax on them.
An increasing number of seniors will be subject to tax on part of their benefits because the thresholds at which social security benefits become taxable are not indexed to inflation. But only certain income counts in determining whether you meet these thresholds.
Distributions from Roth IRAs or Roth 401 (k) s won’t count, so you can withdraw as much money from Roths as you want and not have to worry about giving the IRS a cut in your Social Security.
5. Choose your retirement location wisely
Finally, you can also maximize your Social Security benefits by avoiding state taxes on them. Only 13 states tax social security benefits. If you avoid living there as a retiree, you won’t have to worry about sending some of your retirement money to your local government.
By limiting taxes, maximizing average wages, and earning deferred retirement credits, you should be able to get a big Social Security check. Remember, however, that even if you maximize your Social Security benefits, they still won’t be enough to live on without additional savings – so make sure you have plenty of extra cash in the bank before you leave the world of work. work for good.