3 Social Security Hacks You’ve Never Heard Before
Social security is one of the most important sources of income for many retirees. Unfortunately, it’s a confusing program with a lot of complex rules. It is therefore difficult for the elderly to optimize their income.
The good news is that there are some techniques you can use to get the most money from. Social Security. If you’re looking to boost your retirement income, check out these three social security tips from the benefits experts at Motley Fool.
You can redo your deposit
Maurie backman: You will often hear that it is important to choose the age at which you apply for Social Security membership, because once registered, you end up with the same monthly benefit for life (not counting the annual cost adjustments). of life, of course). But the fact of the matter is, if you apply for benefits too early and regret it afterwards, you aren’t necessarily stuck with it.
A less well-known rule of social security is that each filer gets only one recovery in their lifetime. If you apply for benefits before full retirement age, thus reducing them in the process, but you decide it was not the right call afterwards, you can withdraw your claim for benefits and reimburse the Social Security Administration for all the money they paid you . Do this within 12 months of your initial claim and you will have the option to reapply for benefits at a later date.
In this case, you can decide to claim your benefits at the exact age of your full retirement. Or, you can choose to delay your deposit beyond the full retirement age and thus increase your benefits.
The point is, you are not necessarily stuck with the initial monthly benefit that you are locking into. If you file an early return because you lose your job but are hired elsewhere three months later, and are able to repay all the benefits you have received, then invoking this recovery option might be a smart move. .
In fact, the do-over option effectively allows you to use Social Security as a kind of loan. If you need the money temporarily and think you will be able to pay it back within a year, you can apply for benefits earlier and then catch up after the fact. There is of course a risk in going this route, but it is still an option to consider.
A Roth IRA Can Lower Your Social Security Taxes
Katie brockman: Your Social Security benefits could be subject to both state and federal taxes. Whether or not you owe state taxes will depend on where you live. Your federal taxes will depend on what’s called your combined income.
Your combined income is half of the annual amount of your Social Security benefits plus your adjustable gross income and any tax-free interest.
For example, if you collect $ 20,000 per year in Social Security benefits and also withdraw $ 40,000 per year from your 401 (k), your combined income is $ 50,000. Depending on your combined income, you may owe federal taxes on up to 85% of your benefits:
|Percentage of your benefits subject to tax||Combined income for individuals||Combined income for married couples declaring jointly|
|0%||Less than $ 25,000 per year||Less than $ 32,000 per year|
|Up to 50%||$ 25,000 to $ 34,000 per year||$ 32,000 to $ 44,000 per year|
|Up to 85%||Over $ 34,000 per year||Over $ 44,000 per year|
In the previous example, therefore, if your combined income is $ 50,000 per year, you will owe federal taxes on 85% of your benefit amount.
However, Roth IRA withdrawals do not count towards your combined income.
If you want to reduce or even eliminate federal taxes on your benefits, aim to invest the bulk of your savings in a Roth IRA. If most of your retirement income comes from a Roth IRA, it will lower your combined income and your taxes.
For example, let’s say that instead of withdrawing $ 40,000 per year from your 401 (k) in the previous example, you instead withdraw that money from a Roth IRA. Let’s also say that your benefit amount is still $ 20,000 per year.
In this new scenario, your combined income is only $ 10,000 per year instead of $ 50,000 per year, even though you technically withdraw the same amount each year. This puts you in the lowest tax bracket, and you won’t pay any federal tax on your Social Security benefits at all.
If you still have a few years left before retirement and you haven’t invested in a Roth IRA, it doesn’t hurt to start putting money into that type of account. Not only are Roth IRA withdrawals not subject to standard income tax, but you can also reduce your Social Security taxes. It’s a win-win solution that can save you a lot of money throughout retirement.
You can increase your benefits by working over 35 years
Christy bieber: The Social Security benefit formula uses the average wages over your career to set your monthly benefit amount. But not your entire career – just the 35 years you made the most money (after adjusting your salary for inflation).
For many people, income increases with age. As a result, if you want the biggest Social Security check you can get, it can pay off to stay on the job for over 35 years. You see, if you’ve worked for exactly 35 years, every year of your work history counts in determining your benefits, even those where you may not have earned much.
If you make a lot of money at the end of your career, each additional year that you work at your highest salary will push back one of those low income years. Your average salary over the course of your career will be higher when this happens and your benefits will increase because of it. And the longer you can stay at work for years when you earn a lot, the more you can increase your Social Security checks.
Working longer also makes it easier to delay claiming Social Security benefits, which can provide an additional annual boost to your income. This is because the amount of your monthly check increases with each year that you wait to claim benefits after age 62 (when you first become eligible).
Of course, working longer requires sacrifices, just like enjoying others. retirement strategies, as a recovery after your deposit. But you may decide that it’s worth getting a higher monthly Social Security income for the rest of your retirement.