Is There a Magic Age for Claiming Social Security & Maximizing Benefits?
Written by Gregory Palacorolla, CFP ®
In 2017, U.S. retirees received an average of $1,404/month in Social Security benefits. For many Americans, Social Security benefits are the mainstay of their retirement income, especially for the 39 percent of workers who say they have no money saved for retirement, according to the Social Security Administration. Maximizing this stream of income is a vital need for many and a smart exercise for all. Here are nine ways to position yourself to accomplish this:
Work Until Full Retirement Age (FRA)
The full retirement age was increased from age 65 to age 67 for anyone born in 1960 or later. This change was due to the increase in overall health and life expectancy. Not only does this provide you with more time to accumulate retirement savings using other retirement vehicles, but it encourages you to get at least 35 years of employment under your belt, which brings us to the next point.
Work at Least 35 Years
You need to earn at least 40 credits before you can claim Social Security. For 2018, one credit was earned for every $1,320 made, up to a maximum of four credits per year. Benefits are calculated based on your lifetime earnings, averaging your salary over the 35 years when you made the most. Social Security Administration (SSA) uses the Average Wage Indexing Series for its formula. SSA enters zeroes into the equation for every year you are short of the 35-year mark, so cutting that number back even by a little has an impact!
Watch Federal Taxation!
Income tax is imposed on up to 50 percent of your reimbursement when the total of your adjusted gross income, nontaxable interest, and half of your Social Security benefits falls between $25,000 and $34,000 for single filers and between $32,000 and $44,000 for joint filers. If making above these thresholds, income tax of 85 percent may be imposed. Look for ways to reduce your taxable income to reduce the amount of tax being imposed.
Wait Until Age 70 to Claim Benefits
The longer you hold off on claiming your Social Security benefits, the greater your return. Each year after full retirement, your payout increases by a percentage (8 percent currently), based on specific criteria. For example, if full retirement age is 66, your benefit can be increased by 32 percent by holding off on collecting benefits until age 70 (four years x 8 percent). On the flip side, generally speaking, your monthly benefit will be reduced by between 5 and 7 percent for each year you take benefits in advance of your full retirement age.
Earn More Money
The higher your salary, the more you’ll earn, which will increase your benefit and remove low-wage earning years from the timetable. Earnings of up to $128,700 are used to calculate your retirement payments (2018). Consider a side job to bring in more income during your working years.
Minimize Your Taxable Income While Taking Social Security Benefits
SSA has earnings limits. Early retirees can make $17,040 in gross wages or net self-employment without penalty in 2018. Overages result in $1 deducted for every $2 earned above this amount. Those in full retirement can bring in $45,360 prior to the month of your full retirement birthday without penalty. For every $3 earned above this amount, $1 will be deducted.
Review Option of Claiming Spousal Benefits
Married couples can claim his/her benefits, and in some instances, 50 percent of the spouse’s or partner’s payout as well. The marriage must have lasted a minimum of 10 years. The SSA states, “If you qualify and apply for your own retirement benefits and for benefits as a spouse, we always pay your own benefits first. If your benefits as a spouse are higher than your own retirement benefits, you will get a combination of benefits equaling the higher spouse benefit.”
Maximize Survivor’s Benefits
If a spouse dies, the surviving spouse can inherit the deceased spouse’s benefit payment if it is more than his/her current benefit. Retirees boost the amount the surviving spouse receives by delaying claiming Social Security.
Create a “my Social Security account” and download your Social Security statement annually to check earnings history and taxes paid to ensure they are correct.
Sources: Smart Asset / SSA.gov
© Geier Asset Management, Inc. Jan. 2019. Gregory Palacorolla, CFP ® is Director of Wealth Management for Geier Asset Management, Inc., a Registered Investment Advisor. The articles & opinions expressed in this material were gathered from a variety of sources, but are reviewed by Geier Asset Management, Inc. prior to its dissemination. All sources are believed to be reliable but do not constitute specific investment advice. The views expressed are those of the firm as of January 2019 and are subject to change. These opinions are not intended to be a forecast of future events, a guarantee of results, or investment advice. Any advice given is general in nature and investors must consider their own individual circumstances. In all cases, please contact your investment professional before making any investment choices. Geier Asset Management, Inc. is not responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.