Retirement can easily cost over $1 million, and in some cases, $2 million or more. Saving that much on your own is a monumental task. Fortunately, most people don't have to go it alone, because they can count on Social Security to provide monthly benefit checks.
But if you want to get the most out of the program, you need a strategy. Here are three tips you can use to maximize your Social Security benefit so you can stretch your retirement savings even further.
1. Choose the right starting age
There isn't a clear right answer as to when you should sign up. It depends on how long you think you'll live and whether you can afford to delay.
Social Security is available to adults 62 and older, but signing up as soon as you're eligible often isn't the wisest move if you're trying to get the most money overall. If you want the full benefit you've earned based on your work record, you must wait until your full retirement age (FRA) to claim it. That's between 66 and 67, depending on your birth year.
Every month you claim benefits before your FRA reduces your benefit slightly, while every month you delay benefits past your FRA increases it. For those with an FRA of 66, you could get as little as 75% of your full benefit per month if you start at 62, or as much as 132% if you wait to claim until 70.
And those with an FRA of 67 only receive 70% of their full benefit per month if they sign up at 62, but they're eligible for up to 124% of their scheduled benefit per month if they wait until 70.
You may as well sign up early if you don't think you'll live very long. And you might not be able to wait, even if you'd like to, if you need your benefit checks to cover your living expenses early in retirement.
But if you don't need your benefit right away and believe you'll live into your 80s or beyond, you'll probably end up with more money overall by delaying benefits at least until your FRA.
2. Coordinate with your spouse
Social Security also offers benefits to the spouses of qualifying workers, regardless of whether the spouses ever worked. A spousal benefit could be up to 50% of the worker's benefit at FRA, but how much the spouse actually gets varies. If the worker starts claiming early, that'll also reduce the benefit the spouse receives.
If the spouse also worked and is entitled to a benefit that is larger than the spousal benefit they qualify for, they'll receive their own benefit instead of the spousal benefit.
Planning when you and your spouse are going to sign up for the program can help you maximize your household benefits. First, both spouses should create my Social Security accounts to estimate what their benefits will be at different starting ages. You can also estimate what your spousal benefit might be.
Then, determine the best strategy for both of you. When both spouses have earned similar amounts over the years, it usually makes sense for both to delay benefits as long as possible. But if one spouse has earned significantly more than the other, it's more important for the higher-earning spouse to delay.
The lower-earning spouse can claim early, if necessary, to help the couple get by until the higher earner qualifies for a larger benefit. Then, when the higher earner signs up, the Social Security Administration will automatically switch the lower earner over to a spousal benefit if it would provide more money than the lower earner currently receives.
3. Minimize your benefit taxes
You can owe federal and state taxes on Social Security benefits depending on where you live and how much you earn.
You're off the hook for federal taxes if your provisional income — adjusted gross income (AGI) plus nontaxable interest and half your Social Security benefits — is under $25,000 for a single adult or $32,000 for a married couple. As for state benefit taxes, you'll have to check with your state government to find out if and how it taxes Social Security benefits.
It isn't always possible to avoid benefit taxes if your income is high. But there are steps you can take to reduce how much you owe. Pay attention to how much you're withdrawing from your retirement accounts every year and try to keep your provisional income as low as possible.
Stashing money in a Roth IRA is a great way to keep your taxable income low in retirement. Withdrawals from these accounts are tax-free because you pay taxes on your contributions in the year you make them, so any money you take out of your Roth IRA won't count toward your provisional income.
Know Social Security's place in your retirement plan
Social Security is an important part of most seniors' retirement plans, but it's just one component. It's a great idea to take steps to maximize your benefits, but you can't forget to build up your base of personal savings as well. For many people, personal savings will often be their primary source of income in retirement and should still be top of mind when planning for the future.
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