Understanding Social Security and its benefits can seem like rocket science, but it doesn’t have to be that way. Many retirees are confused on their Social Security accounts and when they should start applying for benefits. Understanding your Social Security benefits isn’t as complicated as you might think.
For senior citizens, Social Security is one of the most critical components for their financial security. Getting the most out of your Social Security account is important, and there are a few ways to make sure that you do that.
Before we tell you how to get the most out of your Social Security benefits, let’s explain exactly how your benefits are determined. First, to receive any Social Security benefits, you must have worked (either for an organization or self-employed and paying Social Security) for at least ten years.
The amount you can receive from Social Security will be based on two separate things. Your benefits will vary based on your highest paying 35 years of work. The other aspect that impacts your Social Security benefits is when you start receiving them. If you sign up as early as possible, age 62, your benefits will be reduced by 25%.
Wait As Long As You Can
Unless you financially need to apply for Social Security benefits at 62, wait as long as you can. Especially if you work past the typical retirement age, there are serious benefits to delaying your Social Security.
For every year that you wait, you’ll receive delayed retirement credits. These delayed retirement credits will equal an 8% bonus on your Social Security benefits every year. You can keep getting these credits until you reach the age of 70.
It’s Time To Move!
Taxes are one of the few things you can always count on. There is nothing you can do about paying them, but there is something you can do to pay less. You can’t avoid federal taxes, but you can avoid some income taxes. Some states will tax your Social Security benefits while others will not. Moving to a state that doesn’t tax Social Security benefits, like Arizona or Florida, can stretch your retirement fund a lot longer.
Work A Little Longer
More than likely as you get close to reaching the retirement age, you’ll be making the largest salary of your life. Because your benefits are based on your highest paying 35 years of work, adding a few higher earning years could give you an additional bump in your Social Security check every month. If you can, working an extra year or two could give your Social Security account the boost that it needs.
Don’t Earn Too Much
This one might seem a little odd at first glance, but making too much after retirement could kill your Social Security benefits. If you file a joint tax return, and your combined income is below $32,000, don’t worry, you won’t be taxed. If your income is above $32,000 and under $44,000 half of your benefits will be taxed. If your income is above the $44,000 threshold, you could be facing an up to 85% tax on your benefits.
Being Married Has Social Security Benefits
Be sure if you are filing joint taxes that you claim Social Security benefits on both income earners. For married couples, delaying benefits for the higher income earner is the best idea. Usually, couples can live off of one person’s Social Security check while they delay the other’s benefits.
Maximizing Your Social Security Benefits
For some people, understanding the finer points of Social Security seem impossible, but it doesn’t have to be that way. With a few minor changes, you get the most out of your Social Security account. It’s important to take the time to understand your benefits and the financial implications of any changes you make. Don’t let a few Social Security missteps keep you from being able to enjoy the perfect retirement you’ve always dreamed of.