5 of the best ways to increase social security benefits

Chances are good that when you retire you will depend on Social Security income to make ends meet. Data from the Social Security Administration shows that 62% of current retirees generate at least half of their income through the program. Meanwhile, the national pollster Gallup polled non-retirees earlier this year and found that a record 88% expect Social Security to be a major or minor source of income during retirement.

This growing dependence on Social Security demonstrates how important it is for future generations of retired workers to maximize what they will receive from the program. While some catalysts for increasing benefits, such as the Annual Cost of Living Adjustment (COLA) or Congressional action, are beyond our control, there are five smart and effective ways for workers to increase their benefits. social security benefits.

1. Work well until your sixties

Some of you may be familiar with the key factors used to determine your monthly Social Security payment at retirement age. When calculating this monthly benefit, the Social Security Administration (SSA) will take into account your top 35 earning years, adjusted for inflation. In other words, the simplest thing to remember here is to work for at least 35 years and earn as much as you can realistically can during those years (up to the taxable earnings limit).

But perhaps the easiest way to increase your Social Security benefits is to work a little longer later in life. By the time you hit sixty, you will have decades of work experience that just might result in a higher pay or salary. This compares to a lower annual salary that typically accompanies an entry-level job when a worker has little or no experience. Working into your 60s will give you the opportunity to replace the low-income years of your teens or twenties with higher-quality income years after you gain the skills and experience that employers will pay for.

2. Delay your claim for benefits

Another easy way to increase Social Security benefits is to just be patient. While eligible seniors can choose to take their retirement benefit as early as 62, Social Security encourages patience by increasing payments for those who wait by up to 8% per year, up to age 69. All factors being equal, such as work history, earnings history, and year of birth, a retired worker who claims benefits at age 70 can receive up to 76% more each month than an individual claiming benefits at 62. years.

What you might not realize is that waiting is also a statistically smarter decision. A 2019 study published by United Income compared the actual claim decisions of 2,000 senior households with their optimal claim decisions. By optimal I am referring to the claim age that would have maximized lifetime benefits. United Income found that 57% of all seniors in the study would have made an optimal claim decision by age 70. In comparison, only 6.5% made the best claim choice by taking their payment before turning 64.

3. Consider a Social Security mulligan

The Social Security program also has a built-in waiver that can help regrettable first filers increase their monthly benefit. This mulligan, officially known as form SSA-521 (request for withdrawal of claim), allows retired workers receiving a benefit to ask SSA to cancel their claim. If approved, it will be as if the worker never applied for or received benefits in the first place. This means that their monthly retirement benefit will increase by up to 8% per year, up to age 69.

As you can imagine, there are a few important rules attached to this take-back clause. First, a retired worker must complete Form SSA-521 within 12 months of first receiving benefits. And secondly, all benefits received must be reimbursed, in full, to SSA in order to cancel a claim.

4. Don’t forget the family

Your immediate family can also be a great source of increased Social Security benefits. For example, a low-income spouse, or perhaps a spouse who has never worked in their life, may be eligible for spousal benefits based on the work and income history of a high-income spouse. Spousal benefits can pay up to 50% of what the higher-income spouse would receive at full retirement age, and in some cases they could be more than what you would receive as a monthly retirement benefit based on your own employment history and income.

Likewise, children can be surprising benefit boosters. Unmarried minor children of workers who receive a Social Security retirement benefit may be eligible to receive up to 50% of the monthly payment from primary workers. Usually, this additional payment ends at age 18, with a few exceptions: 19-year-olds in high school and disabled children whose disabilities began before the age of 22.

5. Avoid Social Security Taxation If Possible

The fifth and final way to put some extra pizzazz in your pocket is to avoid Social Security taxes if possible.

Whether you realize it or not, Social Security benefits are partially taxable federally if an individual or couple earns above certain thresholds. If a single tax filer’s modified adjusted gross income plus half of the benefits exceeds $ 25,000 ($ 32,000 for couples), up to half of all benefits paid above this threshold may be exposed to the ordinary federal income tax. So a little tax planning, like investing with a Roth IRA early and often – qualifying Roth IRA withdrawals don’t count as earned income – and using the withdrawals to fund your retirement, can help people avoid federal taxes.

Another good way to keep more of your payment is to avoid the 13 states that tax Social Security benefits to some extent. Certainly, some states are considerably more tax friendly than others. For example, Missouri doesn’t even start taxing Social Security benefits until an individual crosses over $ 85,000 in Adjusted Gross Income (AGI) ($ 100,000 in AGI for a couple). Unless you roll in the dough in retirement, most people will avoid this tax. Nonetheless, it’s helpful to understand the retirement income tax rules of the state you choose to live in.