14 Essential Strategies to Maximize Your Social Security and Avoid Costly Mistakes
Social Security is a vital lifeline for many seniors, providing crucial income support during retirement. With inflation at its highest in four decades, Social Security’s inflation-adjusted benefits offer protection against rising costs.
Rising interest rates have disrupted many retirement portfolios, causing bond fund values to plummet. In this volatile financial landscape, Social Security can stabilize a typical stock-bond retirement portfolio. By implementing smart strategies, retirees can maximize their Social Security benefits and ensure a more secure financial future.
Check Your Social Security Statements
The Social Security Administration (SSA) creates personalized statements annually which can be viewed by creating an account on the SSA website. While you might be tempted to disregard these statements if retirement seems distant, they offer valuable information for planning your future. The statement includes details such as:
– Your estimated monthly retirement benefit
– Potential benefits for your child or spouse if you pass away before retirement
– The spousal benefit your spouse would be eligible for at retirement
– Your annual earnings record
The yearly earnings record is especially crucial, as any discrepancies in reported income could lead to inaccurate Social Security payments.
Fortunately, you can contact the SSA to correct any errors in your earnings history.
Complete Your 40 Credits
To qualify for Social Security benefits in retirement, you need to accumulate at least 40 “credits” over your working life.
You can earn up to four credits per year, so it takes 10 years of employment to be eligible for Social Security benefits.
In 2024, you need to earn $1,730 to receive one Social Security work credit and $6,920 to earn the maximum four credits for the year. Keep in mind that it is possible to have Social Security taxes deducted from your earnings and not receive benefits if you don’t meet the credit threshold.
Maximize Your Highest Earning 35 Years
Social Security benefits are calculated based on your earnings from the 35 highest income years, not your entire working career.
If you haven’t worked for 35 years, your benefits will be reduced for each year without income. To avoid having zeros included in your calculation, consider extending your career a few extra years to increase your lifetime income average. This approach not only bolsters your savings but can also lead to a higher Social Security benefit.
Increase Your Income
If you find your estimated Social Security benefits disappointing, boosting your income can help. Higher earnings enhance your 35-year earnings record, potentially increasing your benefits.
The more you earn and contribute to Social Security up to the taxable maximum, the higher your retirement benefits will be.
The taxable earnings cap adjusts annually to reflect average wage changes. Earnings beyond the taxable maximum aren’t subject to Social Security taxes and don’t factor into your benefit calculation.
To achieve the maximum Social Security benefit, you must earn at least the taxable maximum amount consistently throughout your career.
While increasing income might seem challenging, there are actionable steps you can take: request a raise, aim for a promotion, or increase your billable hours with your current employer.
Alternatively, consider changing jobs, taking on a part-time position alongside your main job, or starting a side hustle. Ensure that all additional earnings are accurately reported on your taxes to count towards your Social Security earnings.
Determine Your Full Retirement Age
Although it is possible to claim Social Security at age 62, your benefits are reduced by around 30% compared to claiming at Full Retirement Age (FRA). Your age plays a significant role in determining your Social Security benefit, along with your income. Full retirement age is based on your birth year and typically falls between 65 and 67 for most individuals. Knowing your full retirement age helps you make a more informed decision about when to start claiming your Social Security benefits.
Decide When You Want to Claim
Similar to reduced benefits if you claim Social Security earlier than your full retirement age, if you delay claiming past your full retirement age, you can boost your benefit amount.
However, waiting beyond age 70 will not increase your benefits.
If you’ve already begun collecting benefits and regret your decision, there’s still hope. Beneficiaries between full retirement age and 70 can voluntarily suspend payments to increase their future benefits. Additionally, if you started collecting within the past 12 months, you have the option to withdraw your claim by repaying the benefits you’ve received.
Regret Starting Early? Payback
If you regret signing up for Social Security within the first 12 months, you can repay all the money you and your family have received without interest and withdraw your application.
This includes paying back any portion of your benefit that was withheld for Social Security taxes and Medicare premiums.
You can reapply for benefits later, resulting in larger monthly payments due to the delay in claiming. However, this option is a one-time opportunity and can only be used once by each beneficiary.
Suspend Your Payments For a Larger Payout
If you initially accepted a reduced Social Security benefit, there’s still a chance to increase your payments.
Beneficiaries who are between full retirement age and age 70 can pause their Social Security payments to accrue delayed retirement credits.
This approach boosts your benefit by 8% for each year you suspend payments until age 70, potentially increasing your benefit by up to 32% if you pause payments for four years.
This method helps you secure larger Social Security payments later in retirement.
Include Spousal Benefits in Your Decision
Marriage can complicate your Social Security planning. Both spouses—and even ex-spouses if the marriage lasted at least 10 years—can claim their own benefits as well as spousal benefits, which could amount to 50% of the current or former partner’s annual payout.
To optimize these benefits, first identify which spouse will likely receive a larger benefit. The spouse with the lower benefit can start claiming Social Security early, allowing the benefit of the higher-earning spouse to increase over time. When the higher-earning spouse turns 70, the couple can then switch to claiming against the higher earner’s record.
If you’ve been divorced after a marriage that lasted at least 10 years, you can claim spousal benefits starting at age 62 if you haven’t remarried and your former spouse’s benefits are higher than your own.
If you remarry, you can’t claim benefits based on your former spouse, but you can claim benefits based on your current spouse. You also must wait at least 2 years after the divorce to claim spousal benefits.
Eligible for Survivor’s Payment
Survivor’s benefits are a form of Social Security designed to compensate for the loss of retirement income following a spouse’s death. As a widow or widower, you have the option to start receiving these benefits as early as age 60.
Keep in mind, however, that claiming before reaching your full retirement age will result in a reduced benefit amount. At age 62, you have the possibility to switch and start claiming benefits based on your own earnings record, which may result in a higher payout.
If your own Social Security benefit is lower than the survivor’s benefit, it may be wise to claim your own benefits at age 62 and then switch to survivor benefits when you reach full retirement age. At that point, the survivor benefits will be at their maximum.
Survivor benefits do not accumulate delayed-retirement credits, so there is no advantage to waiting until age 70.
Remarrying can impact your eligibility for survivor benefits. If you remarry before turning 60, you won’t qualify for a survivor benefit. However, if you remarry after age 60, you might still be able to receive a survivor benefit based on your former spouse’s earnings.
Benefits for Minor Children
If your spouse has passed away and you’re caring for one or more of their children under age 16, you may be eligible to receive benefits as their caregiver. The benefit amount can be up to 75% of the deceased parent’s regular retirement benefit.
These benefits cease once the child reaches age 16, but they can provide much-needed support if your spouse didn’t leave behind life insurance or other financial resources.
Calculate Impact of Other Pensions
If you have a pension from a job where Social Security taxes weren’t deducted from your paycheck, your benefits may be impacted.
Two complex rules could influence your claiming strategy: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).
The WEP reduces your benefits using a scaled-down factor based on how many years you worked in positions without Social Security tax deductions.
The GPO lowers your spousal and survivor benefits by two-thirds of your noncovered pension amount.
Should You Work in Retirement
You can indeed work while receiving Social Security, but be aware of the earnings limits if you haven’t yet reached full retirement age. If you claim Social Security before reaching your full retirement age and continue to work, your benefits may be reduced if your earnings exceed the income limits for the year.
In 2024, individuals who have not yet reached full retirement age will see a reduction of $1 in benefits for every $2 earned above $22,320. For those who will reach full retirement age in 2024, the reduction is $1 for every $3 earned over $59,520 until they reach full retirement age.
For those under this age, the Social Security Administration (SSA) reduces your benefits by $1 for every $2 you earn above the annual threshold, which was $19,560 in 2022. This deduction changes to $1 for every $3 over $51,960 once you hit full retirement age.
If you decide to work and claim benefits simultaneously, it’s crucial to manage your earnings to preserve your retirement income. Fortunately, once you reach full retirement age, there are no limits on how much you can earn without affecting your benefits. Additionally, your benefits will be adjusted to account for any previous reductions or withholdings due to excess earnings.
Does Your State Tax Social Security
In addition to Federal taxes, currently 10 states tax social security earnings in 2024 and 2 just stopped.
Colorado, Connecticut, Kansas, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont are currently taxing social security.
Good news for West Virginia resident is the bill phasing out tax on Social Security benefits has been signed into law. Retroactive to Jan. 1 of this year, it applies to 35% deduction for 2024, 65% for 2025 and 100% deduction on Social Security income for 2026 taxes and beyond.
As of 2024, Missouri and Nebraska join the list of states that no longer tax social security income.
Related Article: States Taxing Social Security
Seek Guidance on Your Unique Situation
Social Security can seem complex especially when you add spousal, survivor or minor children benefits into the mix. Since everyone’s circumstances are unique, with various claiming strategies available, it’s important to tailor your decision to your specific needs including your age, life expectancy, income requirements, and other retirement assets. Making informed decisions is crucial as even minor errors can significantly impact your retirement goals.
Like Financial Freedom Countdown content? Be sure to follow us!
11 Reasons You Should Claim Social Security Early
Deciding when to claim Social Security is often about maximizing your benefit. Financial planners usually advise delaying your claim for as long as possible to secure the highest monthly payment. Your benefit is based on your lifetime earnings, with a full payout available at your full retirement age (FRA), which is currently between 66 and 67 depending on your birth year. Claiming before FRA results in a permanent reduction in your monthly benefit, while waiting beyond FRA leads to a permanent increase. However, the decision isn’t solely about maximizing the monthly check. Personal factors such as health, family circumstances, and financial needs can play a significant role in determining the right time to claim.
11 Reasons You Should Claim Social Security Early
The 10 States Taxing Social Security in 2024 and the 2 That Just Stopped
As 2023 tax filing season draws to a close, retirees across the nation are adjusting their financial plans for 2024, but a crucial detail could drastically alter the landscape of retirement living: the taxing of Social Security benefits. While many bask in the belief that their golden years will be tax-friendly, residents in nine specific states are facing a reality check as their Social Security benefits come under the taxman’s purview. Conversely, a wave of relief is set to wash over two states, marking an end to their era of taxing these benefits. This shift paints a complex portrait of retirement planning across the U.S., underscoring the importance of staying informed of the ever changing tax laws. Are you residing in one of these states? It’s time to uncover the impact of these tax changes on your retirement strategy and possibly reconsider your locale choice for those serene post-work years. Here are the 9 states taxing social security benefits.
The 10 States Taxing Social Security in 2024 and the 2 That Just Stopped
Retire Abroad and Still Collect Social Security? Avoid These 9 Countries Where It’s Not Possible
Dreaming of retiring to a sun-drenched beach or a quaint village? Many Americans envision spending their golden years abroad, savoring the delights of new cultures and landscapes. However, an essential part of this dream hinges on the financial stability provided by Social Security benefits. Before packing your bags and bidding farewell, it’s crucial to know that not all countries play by the same rules when it comes to collecting these benefits overseas. Here are the nine countries where your dream of retiring abroad could hit a snag, as Social Security benefits don’t cross every border. Avoid living in these countries so your retirement plans don’t get lost in translation.
Retire Abroad and Still Collect Social Security? Avoid These 9 Countries Where It’s Not Possible
Did you find this article helpful? We’d love to hear your thoughts! Leave a comment with the box on the left-hand side of the screen and share your thoughts.
Also, do you want to stay up-to-date on our latest content?
1. Follow us by clicking the [+ Follow] button above,
2. Give the article a Thumbs Up on the top-left side of the screen.
3. And lastly, if you think this information would benefit your friends and family, don’t hesitate to share it with them!
John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
Here are his recommended tools
Personal Capital: This is a free tool John uses to track his net worth on a regular basis and as a retirement planner. It also alerts him wrt hidden fees and has a budget tracker included.
Platforms like Yieldstreet provide investment options in art, legal, real estate, structured notes, venture capital, etc. They also have fixed-income portfolios spread across multiple asset classes with a single investment with low minimums of $10,000.
