Social Security offers a critical income stream for retirees, and making the most of these benefits is important. Unfortunately, maximizing Social Security payments can be complex and confusing.
There are several factors to consider, and some choices you make could be irreversible. Don’t worry – we’re here to help. We’ll discuss great strategies for getting the most out of your Social Security payments. Follow these tips, and you’ll get to a comfortable retirement.
Work a Bit Longer
If you can swing it, working for a few extra years can pay off handsomely in the form of higher Social Security payments. That’s because your benefits are calculated based on your highest 35 years of earnings.
So if you have a few low-earning years early in your career, working longer will replace those years with higher-earning ones, which could result in a bigger benefit check.
Delay Claiming Benefits
You can file for your Social Security as early as age 62, but waiting even a little bit longer – until age 70 – can result in much larger payments. That’s because delaying benefits allows them to grow at an annual rate of about eight percent.
If you hold until age 70 to start collecting, your payments will be about 76 percent higher than if you claimed them at 62.
Think About Your Mortgage
If you still have a mortgage when you retire, you’ll want to consider how claiming Social Security will affect your monthly budget. Most people’s mortgages are paid off by the time they retire, so claiming benefits early isn’t necessary to help them with their monthly mortgage payments.
Waiting to claim Social Security can give you a bigger monthly benefit check later on, which can be used to help cover other expenses in retirement.
However, if you are still paying down your mortgage and need the cash flow to meet your monthly obligations, it might make more sense to claim benefits early, so you can use that extra money to pay down debt.
Take Advantage of Spousal Benefits
If you’re married and are on track to receive a large benefit check, you might consider taking advantage of spousal benefits. You can delay Social Security until 70 to maximize the total household benefit.
Spousal benefits allow a low-earning spouse to claim their benefits at 62, bringing in additional household income. This option is also open to ex-spouses, provided the marriage lasted 10+ years, was divorced two or more years ago, and hasn’t remarried.
When a higher-earning spouse applies for Social Security, the agency automatically switches their lower-earning partner to receive half of what the higher-earning spouse is eligible for. The lower-earning spouse will also get the higher-earning spouses full benefit if they were to pass.
Consider Your Taxes
It’s important to consider how claiming Social Security will affect your taxes. That’s because up to 85 percent of your benefits may be taxable, depending on your income. So if you’re expecting a large tax bill, it might make sense to wait until later to claim benefits.
Go Through Your Social Security Statement
Your Social Security statement is a great resource that can help you understand your benefits and make informed decisions about when to claim them. You can request a copy of your statement by logging into your online account or calling the Social Security Administration.
Other Pension Payments
If you have other pension payments, such as from an employer, you’ll need to consider how those will affect your Social Security benefits. Your benefits may be reduced if your total income is too high. So if you’re expecting a large pension payment, it might make sense to wait until later to claim Social Security.
Include Your Family
If you have a dependent child and qualify for Social Security or disability benefits, your child may also be eligible for payments. The child must be under 18 (or 19 if they’re still in high school) and unmarried.
If you have a disabled child, there is no age limit. You’ll also need proof of the child’s relationship to you, such as a birth certificate or adoption papers.
Think About Your Health
Your health is an important factor to consider when deciding when to claim Social Security benefits. That’s because the older you are, the more likely you’ll experience poor health. So if you’re in good health and expect to live a long life, it might make sense to wait until later to claim benefits to receive larger payments for a longer period.
Withdraw Your Application
If you claim benefits early and later decide you want to wait longer to receive larger payments, you can withdraw your application. You’ll need to do this within 12 months of when you started receiving benefits. To cancel your application, you’ll need to repay all the benefits you’ve received.
This option is only available if you claim benefits before reaching your full retirement age. And you can only do it once in your lifetime.
Work with a Financial Advisor
The strategies above can help you make the most of your Social Security payments, but they’re just a starting point. To get the most out of this important income stream, you’ll need to work with a financial advisor who will assist you navigate the process and make the best choices for your unique situation.
Don’t take chances with your financial future. Contact a financial advisor today.