If you plan to make social security a significant portion of your retirement income, it is important to do everything in your power to increase the amount of your monthly benefit.
While your Social Security checks will never be enough to support you without extra funds, you can take these four steps to make the most money if you hope to earn a large portion of your retirement.
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1. Maximize your earnings
Your monthly social security benefits are equal to a percentage of your average indexed monthly earnings, or AIME. A higher AIME translates to a larger check.
Your AIME is calculated by adjusting your wages for inflation and determining your average earnings during the 35 years when your income was highest. This means that you can maximize it by increasing your income as much as possible during your career (up to the wage base limit of social security) and by working for at least 35 years. If you work less time, you will reduce AIME by including years of $ 0 wages in your average.
If your earnings have increased throughout your career (after adjusting for inflation), you can help increase your benefit for more than 35 years. This is because you are replacing an early year with lower earnings with higher earnings in your AIME calculation.
2. First start with 70 with your checks
Each pensioner has a standard benefit, or primary insurance amount, based on their AIME. But you may not get the exact amount. Penalties for early filing will reduce it if you check before your full retirement age (FRA). And delayed retirement credits can increase it when you delay the start of your benefits to FRA.
Delayed retirement credits can only be earned until you reach the age of 70 years. This will significantly increase your monthly check amount. For each month of delay, it increases your check by two-thirds of 1%. This is an annual benefit increase of 8% for each year you wait.
If you’re hoping to use Social Security checks to bank a large portion of your retirement, you can not afford to give up the hefty benefit increase that results from delay.
3. Understand all the benefits you can get
In some cases, the best way to get the maximum income from social security is to claim benefits based on someone else’s work record. You can specifically claim benefits for spouse or survivors.
It is not only available to those who are currently married or who were married when their spouse passed away. Marriage benefits are also available to those who were married for at least ten years before divorcing, as long as they have not remarried. And divorces are also available to survivors, as long as their marriage lasted ten years or longer and they were not remarried before the age of 60 (or before the age of 50 if they were unfit).
The Social Security Administration will not necessarily help you figure out how to maximize your benefits by being strategic in claiming benefits for your spouse or survivors. Make sure you do the research to understand everything you are entitled to.
4. Minimize taxes on your social security
Finally, if you are hoping that social security will provide you with a solid retirement income, you can not afford to have more tax deducted from your check than is necessary.
The good news is that social security benefits do not become taxable until your provisional income reaches a certain threshold. The bad news is that the threshold is pretty low. Once your provisional income (your taxable income plus half of your social security benefits plus some non-taxable income) reaches $ 25,000 as a single file or $ 32,000 as a married joint file, you will be partially on your social security funds taxed.
However, if your other retirement money comes from a Roth IRA, your benefits are not taxable income, so it will not put you above this income threshold. To stretch your social security as far as possible, you want to invest in a Roth during your career instead of a traditional account.
However, if you are approaching retirement age or have already retired, do not assume that a Roth conversion is the right way to protect your social security from taxes. Roth conversions can have major current consequences for current and near retirees, which you will need to make sure you understand.
If you are hoping to get the most money out of social security, you will act early in your career as the best strategies on this list, such as maximum income and investment in a Roth, start best when you are young and very years until you retire. Remember, however, that no matter what steps you take, it is likely that you will be able to live on social security alone, and therefore supplementary income is essential for a secure retirement.