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For many Americans, Social Security is a vital part of retirement planning, and understanding how to maximize your benefits can make a huge difference in your financial well-being during your golden years.
To help you make the most of this retirement security net, we’ve created a Social Security cheat sheet that highlights 12 ways to maximize your benefits.
These 12 strategies are perfect for those who are nearing retirement and are looking to boost their hard-earned monthly payments.
If you want more detailed advice and guidance around your social security decisions, you can request a free retirement assessment through our firm, Covenant Wealth Advisors.
Before you read further, don't forget to download our free social security benefits cheat sheet for spouses.
Here are the strategies that you can expect to learn more about in this Social Security cheat sheet:
1. Delay Your Claim
One of the simplest ways to increase your Social Security payments is by delaying your claim beyond your full retirement age (FRA). For each year you delay, your benefit increases until you reach age 70. For near-retirees who already have a bountiful nest egg, delaying your claim can be a simple, low-stress way to increase your Social Security benefit.
Social Security benefits are intended to be neutral. This means that if you live an average lifespan, you'll receive roughly the same benefits regardless of when you start claiming. However, delaying your claim can be better if your family has a history of living longer than average.
But, delaying social security until age 70 has another potential benefit few people consider; higher survivor benefits. If the spouse outlives the beneficiary, the surviving spouse is entitled to receive the higher amount the deceased was receiving or was eligible to receive. By waiting until age 70, the beneficiary maximizes the monthly benefit, which can significantly increase the survivor’s benefits.
Social Security benefits are also adjusted annually for inflation. Delaying your claim means starting with a higher amount. This starting point can provide better protection against the impact of inflation over the course of your retirement.
Delaying your claim opens up a host of opportunities including being able to implement Roth conversions. This can get complex and we recommend talking to a financial advisor. Just complete the quiz below to request a free assessment.
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While delaying your claim gives up benefits in the short term, the long-term benefits can make it a smart financial move. This can include higher monthly payments, a larger lifetime benefit, and protection against inflation.
It's a bit like planting a seed and waiting years to enjoy a more bountiful harvest in the future.
However, one downside to delaying your claim is that you will not be able to spend or invest your monthly check until you decide to claim it. Depending on your budget and personal retirement savings, this might mean living on a reduced income.
Even if you have enough savings to bridge the gap, there can be a bit of anxiety associated with making substantial withdrawals from your investment portfolio. This is especially true from the day you retire to the time you begin taking social security.
2. Work a Bit Longer
Social Security benefits are based on the number of credits you've earned over your working career. You can earn up to four credits per year, and you generally need 40 credits to qualify for retirement benefits.
By working a bit longer, you have the opportunity to earn more credits, ensuring that you meet or exceed the 40-credit requirement.
Continuing to work beyond your FRA can increase your benefits.
The Social Security Administration (SSA) calculates your benefit based on your highest 35 years of earnings. So, swapping a lower-earning year for a higher-earning one can make a meaningful difference in the size of your check.
Also, the SSA adjusts your earnings to account for average wage changes over the years.
3. Coordinate Spousal Benefits
If you're married, planning with your spouse to optimize your benefits can be useful. By coordinating spousal benefits, you can create a scenario that maximizes overall household benefits.
For example, one spouse might agree to continue working and delay their benefits while the other spouse receives theirs. This way, the household can expect to receive a higher benefit a few years down the road. This can result in a higher total household benefit compared to each spouse claiming the moment they reach their full retirement age.
4. Claim and Suspend
“Deemed filing” was a strategy where some spouses received spousal benefits at full retirement age while letting their own Social Security benefits grow by delaying their benefits. In this sense, they were able to receive one type of benefit while getting rewarded for delaying another benefit.
The Bipartisan Budget Act of 2015 put an end to this practice.
Example 1: Helen will be 62 after January 1, 2016. Her husband, Frank, is 65. Both of them have put in enough years at work to qualify for retirement benefits. Come March of 2020, Helen hits her full retirement age and decides to apply for these benefits. There's a perk she can get based on Frank's work record—it's called a spousal benefit. But here's the thing: Helen has to sign up for her own retirement benefit at the same time. Gone are the days when she could just go for the spousal benefit and hold off on claiming her own retirement cash. What happens now is she'll get a mix of both benefits that adds up to the higher amount of the two.
However, this strategy is still legal for those claiming survivor benefits. If you are a widow or widower, you may start your survivor benefit independently of your retirement benefit.
Next Steps: Making the right social security timing decisions can be overwhelming. We recommend speaking with a financial advisor. This tool will connect you with a fiduciary financial advisor at Covenant Wealth Advisors with over 15 years of experience.
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Example 2: Alexis is 62 and has been widowed. She's earned enough through her career to get retirement benefits and is also entitled to survivor benefits from her late husband's work. This year, she kicks off her survivor benefits by applying just for the widower's benefit. Alexis decides not to tap into her own retirement funds yet, letting that potential money grow over time. When she hits 70, she begins to collect her own retirement benefits, which have now increased thanks to the delay, and she'll get these enhanced payments for life. The recent changes in the law don't change her plan, because the rules that often require a person to apply for all available benefits at once, known as deemed filing, don't apply to widows and widowers. Alexis will receive whichever amount is greater between her own retirement benefits and the survivor benefits.
5. Maximize Earnings
Social Security benefits are calculated based on your Average Indexed Monthly Earnings (AIME).
Maximizing your earnings means that you're contributing more to your AIME.
This helps determine your primary insurance amount (PIA).
A higher PIA leads to higher monthly Social Security benefits.
As your benefit is based on your highest 35 years of earnings, maximizing your income during your working years can be a huge benefit to you.
Each year, the Social Security Administration reviews all beneficiaries who have wages reported for the previous year. If your latest year of earnings is one of your highest years, they will recalculate your benefit and pay you any increase you are due. So, if you are presented with a high-paying job opportunity then you might want to consider it even if you are nearing retirement – boosting your AIME can help lead to a higher Social Security benefit.
6. Be Mindful of the Earnings Test
You are legally allowed to work and earn income once you’re retired, even if you’ve already started receiving Social Security benefits. However, there is a limit to how much you can earn while still receiving your full benefit.
If you are under the full retirement age then the SSA will deduct $1 from your benefit payment for every $2 you earn over the annual limit. In 2023, the annual earnings limit for those under full retirement age is $21,240.
If you reach full retirement age in 2023 then the SSA will deduct $1 from your benefit payment for every $3 that you earn over the annual limit. In 2023, the annual earnings limit for those who have reached full retirement age is $56,520.
This earnings test applies to both retirement and survivor benefits, but not to benefits received by spouses or divorced spouses. If you're working and claiming benefits before your FRA, be aware of the earnings test. Excess earnings could result in a reduction of your benefits.
7. Be Aware of Survivor Benefits
Survivor benefits can be essential for maximizing Social Security benefits, particularly if planning for the potential loss of a spouse.
If a family member passes away then other members of their family may be eligible to receive their benefits – as long as the deceased person worked long enough to qualify for benefits. In most cases, the funeral home will report the death to the SSA. So, be sure that you provide the deceased’s social security number to the funeral home.
Although it’s a morbid topic, survivor benefits can be leveraged in certain situations – such as when there is a large age gap between spouses.
8. Receive Dependent Benefits
There are five parties that can be eligible for dependent benefits:
Spouses: If you're married, your spouse may be eligible for spousal benefits based on your earnings record. The spousal benefit is generally equal to 50% of your FRA benefit.
Widowers/Widows: Survivors who have reached their normal retirement age can receive 100% of their deceased spouse’s benefit. But, you may also be able to receive a partial amount of your spouse’s benefit depending on your age and circumstances.
Ex-spouses: Divorcees are eligible to receive up to 50% of their former spouse’s PIA if they were married for more than ten years.
Dependent children or grandchildren: Children can qualify for a benefit as the survivor of a deceased worker or as the dependent of a living parent who receives Social Security retirement or disability benefits
Dependent parents: The dependent parents of a deceased worker who is 62 or older can receive 82.5% of the worker’s benefit for one parent or 75% each for two parents
Being aware of these contingencies can help you take advantage of benefits that might have otherwise gone unclaimed – a key strategy for your Social Security cheat sheet.
9. Coordinate With Other Retirement Income Sources
Coordinating Social Security benefits with other income allows for tax-efficient planning.
For example, timing withdrawals from tax-deferred retirement accounts (e.g., traditional IRAs or 401(k)s can minimize your overall tax liability. Additionally, prioritizing other sources of income, such as pensions, can allow you to delay claiming your Social Security benefits. Thus, increasing your eventual benefit.
Analyze the timing and taxes of these income streams to improve your overall financial picture. For personalized advice, please request a free retirement assessment to learn more about your options.
10. Pay Attention to Your Tax Bracket
Social Security benefits are subject to income tax if your income exceeds certain thresholds. Monitoring your income and being aware of your position within tax brackets can help you make better decisions.
Next Steps: Making the right social security timing decisions can be overwhelming. We recommend speaking with a financial advisor. This tool will connect you with a fiduciary financial advisor at Covenant Wealth Advisors with over 15 years of experience.
Here's how it works:
Answer these few easy questions, so we can understand your situation.
Schedule a call with a credentialed financial advisor who can help you on the path toward achieving your financial goals. It only takes a few minutes.
Get your free assessment
For example, in some cases, it is not beneficial to increase your income if it means that you will be taxed at a higher rate. After paying the higher tax rate, you might end up with less net income.
Here’s more on how your tax bracket is impacted in retirement.
It can also help with knowing when and how much to withdraw from retirement accounts and when to start claiming Social Security. In the years leading up to claiming Social Security benefits, you might have the opportunity to control your taxable income. This allows you to plan your withdrawals from retirement accounts accordingly to avoid tax bracket bumps.
11. Leverage the Restricted Application
The restricted application is a Social Security claiming strategy that allows divorced individuals born before January 2, 1954, to file a restricted application for only spousal benefits while delaying their own retirement benefits.
By delaying the receipt of their own benefits, retirees can earn delayed retirement credits at a rate of 8% per year for each year beyond their FRA (up to age 70). This may help retirees maximize their Social Security benefits while still receiving income.
Unfortunately, the restricted application strategy disappears at the end of 2023.
12.) Fact-Check the SSA
For the most part, the Social Security Administration will handle calculating your total benefit. But, this doesn’t mean that they will do an accurate job of doing so. Always remember to check the SSA’s calculations to ensure that you are receiving your full benefit.
There’s a chance that they might make a mistake when it comes to calculating your income, working years, or another factor. Or, they might not realize that you’re eligible for a specific benefit. If this is the case, you’ll be able to correct them and start receiving your full benefit.
Social Security Cheat Sheet: Maximizing Benefits
Remember, the key is to align these strategies with your financial position and goals. Just because there are 12 ways to maximize your Social Security benefits, doesn’t mean that you need to leverage all of them. In fact, there might only be one or two that are relevant to your needs.
Consulting with a financial advisor can help you tailor these strategies to your situation. This can ensure that you make the most of your working years to increase Social Security benefits.
We hope that you’ve found this article valuable when it comes to learning a Social Security cheat sheet to boosting your benefits.
If you are ready to take control of your retirement planning, get a jumpstart with this free retirement assessment from Covenant Wealth Advisors. Don't miss out on this opportunity to make better decisions about your financial well-being. Start planning today!
Author: Mark Fonville, CFP®
Mark is a fiduciary, fee-only financial advisor at Covenant Wealth Advisors specializing in helping individuals aged 50 plus plan, invest, and enjoy retirement without the stress of money.
Forbes nominated Mark as a Best-In-State Wealth Advisor* and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine.
Disclosure: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.
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