Social Security can play a crucial role in your retirement, especially if you have limited savings. According to a 2024 report from the Transamerica Center for Retirement Studies, the median retirement savings for baby boomers is only $194,000, and a significant 43% of them expect Social Security to be their primary source of income in retirement.
If Social Security is going to be your main income source, it’s important to make the most of it. With the right approach, you could significantly boost your monthly payments, sometimes by hundreds of dollars. Here are three lesser-known strategies to help maximize your Social Security benefits:
1. You Can Reverse Your Claiming Decision
Once you start receiving Social Security benefits, your payment amount is typically locked in for life (except for cost-of-living adjustments). However, if you change your mind about when you start claiming, you may have an opportunity to reverse your decision.
If you file early but later decide you want larger monthly payments, you can withdraw your application within 12 months. This would mean repaying the benefits you’ve already received, but it gives you a second chance to file again at a later age. If the 12-month window has passed or you’re unable to repay the benefits, you can choose to suspend your Social Security benefits once you reach full retirement age. By doing this, you can pause payments until you reach age 70, when your monthly checks will be larger.
For instance, the average retiree who waits until age 70 to claim Social Security could receive nearly $740 more per month compared to claiming at age 62.
2. The Length of Your Career Affects Your Benefit Amount
Many people know that your earnings and the age at which you start claiming Social Security will determine your monthly benefit. However, the number of years you’ve worked is another important factor.
To qualify for retirement benefits, you generally need to have worked and paid Social Security taxes for at least 10 years. However, your monthly benefit is calculated based on the average of your highest-earning 35 years. If you haven’t worked for 35 years, your average will include zeros for the missing years, which will lower your benefit.
If you’ve worked fewer than 35 years, consider working longer, especially if you’re earning more than you did earlier in your career. Adding more high-earning years can increase your average earnings, which results in a higher monthly Social Security payment.
3. Roth Account Contributions Can Help Lower Your Taxes
Even in retirement, you may still owe income taxes, including on your Social Security benefits. However, there are strategies that can reduce your taxable income.
Social Security benefits are taxed based on your provisional income, which is the sum of half your annual benefit amount, your adjusted gross income, and any non-taxable interest. For example, if you receive $20,000 in Social Security benefits and withdraw $40,000 from your 401(k), your provisional income would be $50,000.
However, withdrawals from Roth IRAs don’t count toward your provisional income. So, if you take money from a Roth IRA instead of a 401(k), your provisional income would only be $10,000, significantly reducing your taxable income. As a result, you could avoid paying federal taxes on your Social Security benefits.
While there isn’t one perfect Social Security strategy for everyone, taking the time to understand these tactics can help ensure that you get the most out of your benefits and set yourself up for a more financially secure retirement.
The $22,924 Social Security Bonus Most Retirees Overlook
Many retirees find themselves behind on savings, but a few little-known Social Security strategies could help boost your retirement income by as much as $22,924 per year. Click here to learn how to maximize your Social Security benefits and retire with confidence.
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