Social Security benefits make up a substantial amount of income for millions of retirees, but your monthly checks were never designed to replace your income entirely during your senior years.
Although Social Security was only intended to make up around 40% of pre-retirement income, nearly one-quarter of married couples and close to half of unmarried beneficiaries rely on their benefits for at least 90% of their income in retirement, according to the Social Security Administration.
If you're nearing retirement, it's wise to keep saving and build a robust nest egg so you won't have to rely so heavily on Social Security. However, there are also a few things you can do to boost your monthly payments.
1. You may be able to claim extra benefits if you're married or divorced
If you're currently married to or divorced from someone who is eligible for Social Security benefits, you may be entitled to spousal or divorce benefits.
While these benefits are primarily for those who haven't worked enough to earn benefits based on their own work record, you may be able to receive spousal or divorce benefits in addition to your own payments.
The most you can collect is 50% of the amount your spouse or ex-spouse is eligible to receive at his or her full retirement age (FRA). So, for example, if your spouse will receive $2,000 per month at his or her FRA, the most you can collect in spousal benefits is $1,000 per month. If you were already receiving, say, $700 per month based on your own work record, you'd collect your $700 payment plus an extra $300 per month.
2. If you claim too early, you can reverse your decision
Deciding what age to begin claiming benefits is important, because it will affect the size of your monthly checks for the rest of your life. The earlier you file (as early as age 62), the smaller your checks will be. If you delay benefits (up to age 70), you'll receive larger checks each month.
While there are legitimate reasons to claim early, it's not the right move for everyone. Maybe you claimed at 62, then realized you weren't receiving enough to pay the bills. Or maybe you decided to work a few more years and wanted to put off benefits.
If you claim early and then change your mind, you have one opportunity to reverse your decision. You'll need to withdraw your application within 12 months of claiming, then repay all the benefits you've already received. After that, you can delay benefits and earn larger checks down the road.
3. Saving in a Roth IRA can reduce your taxes
Unfortunately for many retirees, Social Security benefits are subject to both state and federal income taxes. The good news, though, is that 37 states do not tax benefits, so there's a good chance you can get out of paying state taxes on Social Security.
Federal taxes, though, are harder to avoid. Whether or not you'll owe federal taxes on your benefits depends on your combined income — which is half your annual benefit amount plus all other sources of income, such as 401(k) withdrawals.
If your combined income is higher than $25,000 per year (or $32,000 per year for married couples filing taxes jointly), you'll have to pay federal income taxes on up to 85% of your benefits.
However, Roth IRA withdrawals do not count toward your combined income. This means that the more you withdraw from a Roth IRA rather than a 401(k) or traditional IRA, the lower your combined income will be. If the majority of your savings are stashed in a Roth IRA, you may be able to reduce your combined income enough to avoid federal taxes altogether and keep more of your benefits.
Boosting your Social Security checks can make for a more comfortable retirement, so it's wise to make sure you're maximizing your benefits. With these three moves, you may be able to earn more than you think.
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