Your 3-Step Plan for Making the Most of Your Social Security Benefits

Most retirees have just one guaranteed source of lifetime income: Social Security. And while the benefits from that program won’t be enough to support you particularly well by themselves, they will probably account for a significant portion of your retirement income.

That’s why it’s worth making an effort to maximize the benefits you receive.

While this can be tricky since so many factors go into determining the size of your monthly benefit checks, this simple three-step plan can help you figure out the Social Security claiming strategy that makes the most sense for you.

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1. Consider your specific situation

The first big thing to realize when attempting to optimize your Social Security benefits is that there’s no universal strategy that works for everyone.

While you’ll often hear that people will end up better off by delaying the date at which they claim their benefits, this is true only in certain circumstances. Some people will do better by claiming benefits early.

The important thing is to consider your unique situation — and specifically, your health and your marital status. Single people heading into their 60s in poor health will likely end up getting more out of the program over the course of their lifetimes if they file for checks as early as possible — even though that means their individual checks will be smaller. If they wait, they might die before getting any benefits. Or they might end up receiving the larger payments that come from a delayed claim, but only for a relatively short time. In such a case, the bigger checks might not make up for the income missed out on by postponing the date on which you file for Social Security.

Married couples, meanwhile, have additional complexities to consider. Your decision about when to claim benefits will affect not just your own income, but also your partner’s eligibility for spousal benefits or the size of the survivor benefit they would be eligible for if you predeceased them. Research all of the rules regarding spousal and survivor benefits carefully, and think about these issues as well as your health situation when deciding when to claim benefits.

2. Work for at least 35 years before claiming benefits

Regardless of whether you decide to file for Social Security checks as soon as you turn 62 or you want to wait until you turn 70 to max out the size of your monthly benefit checks, it’s important to accomplish one key task before filing. You’ll want to have 35 years of earnings history under your belt.

See, your benefits are based on the average income you earned over the 35 highest-earning years of your working life, after adjusting for inflation. If you worked for fewer years than that, the result of that calculation will get dragged down because the Social Security Administration will be adding $0 wage years into the mix for each year short of 35 your earnings history is.

That could noticeably shrink your benefits — even more so if your relative earnings power is higher at the end of your career than it was at the beginning, and working for an extra year or two would mean replacing $0 wage years with years that actually boost your lifetime average.

And, in fact, if that’s that case for you, you may be even better off trying to work for more than 35 years. The Social Security benefit calculation is always based on your highest earning years; if you’ve got more than 35 years of wages, higher-earning years displace lower-earning ones from the mix.

3. Minimize the taxes you owe on your benefits

Being hit with a tax bill on some of your Social Security benefits will also leave you with less to live on, so as part of your plan to optimize your benefits, you’ll want to consider how to reduce what you owe to the IRS.

Social Security benefits only become partly taxable at the federal level once your provisional income reaches $25,000 for single tax filers or $32,000 for married joint filers. But provisional income isn’t all income. It’s the sum of all taxable income, half your Social Security benefits, and certain limited types of income from non-taxable sources such as municipal bond interest.

The key factor you have control over here is that only taxable income counts. So, for example, distributions from Roth accounts don’t because they aren’t taxable. Thus, if you want to reduce or avoid taxes on Social Security, investing through a Roth IRA or Roth 401(k) could be the way to go, because that will give you a non-taxable income source you can tap in retirement.

You’ll also want to research your state’s rules. Right now, 13 states impose some taxes on Social Security benefits. You may want to consider retiring to one of the 37 that don’t.

By taking each of these steps, you can make the most of your Social Security income and enjoy a more secure retirement.

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