Provided by: Retirement Think Tank
Although we can all be thankful that Social Security provides an income for retirement, the truth is that for many people, that benefit amount is simply not enough for the lifestyle they had in mind when they were able to stop working. Even with the COLAs (Cost Of Living Adjustments)that raise benefits in keeping with the rate of inflation, you may find yourself in a financial pinch if you rely solely on your Social Security check. So, you may find a few strategies and secrets for maximizing your Social Security benefits helpful.
It will pay you to be proactive about ways to maximize your Social Security retirement benefit and discover methods of making the most of it, as well as increasing and/or supplementing it. Otherwise, you may discover that you won’t have enough extra money to enjoy a social life or have much financial security, either! In fact, you may find yourself struggling to make ends meet just to cover basic necessities. Is this the way you want to spend your Golden Years…pinching pennies, buying your clothes from thrift stores and bargain basements, celebrating birthdays and anniversaries at Big Ed’s Cheap Eats Early Bird Special?
Let’s face it, that scenario doesn’t sound particularly appealing. Read on to discover seven powerful secrets to maximize your Social Security so that your retirement can be as fun filled, relaxing and rewarding as you always dreamed it would be! I. Your Patience May Be Rewarded Strategy When it comes to deciding when to start receiving Social Security retirement benefits, patience might be its own reward. Why? Simply because the longer you delay drawing your benefits, the larger the amount you’ll receive.
For example, if you file to begin receiving benefits at age 62, which is the youngest age possible, you will get a 25% reduction in the amount you draw each month. If you elect to wait and file at the age specified as full retirement age according to your birth date—66 if you were born between 1943 and 1954—you will get considerably more money. Three out of four people don’t wait until their full retirement age to start receiving benefits.
Back when Social Security was born, this wasn’t such a bad idea, as the average life expectancy then for any race and either gender was 61.7 years. That being the case, a lot of people didn’t live long enough to even start getting benefits early. Nowadays, though, the average life expectancy has increased to 77.9 years, so this puts a whole different spin on things, doesn’t it?
Consider this: if your monthly benefit would be $2,400 at a full retirement age of 66 and only $1,800 at age 62; you’re looking at a difference of $600 a month, which is a pretty nice chunk of change. Assuming you survived until the average life expectancy age of basically 78, you would lose about $20,000 by filing early. Bear in mind that if you file for Social Security early, the deduction in your benefits will be permanent, not temporary. You should sit down and take an objective look at your health and probable life expectancy and then decide whether or not you would lose or gain monetarily by delaying your Social Security Benefits until you reach full retirement age. If you can wait, good. If you can but just don‘t want to; this may end up being a case of file in haste, repent at leisure.
II. The File and Suspend Strategy
This is quite effective for married couples and affords an excellent way to maximize your Social Security benefit. Here is how it works: The high earning spouse applies for benefits when reaching full retirement age, but then immediately suspends them. Since married people cannot file for spousal Social Security benefits until their spouse does, this allows the spouse with lower earnings—who would receive a smaller benefit based on their own earnings—to go ahead and begin receiving spousal benefits. As an added bonus, the higher earning spouse, having suspended benefits, may continue working.
The advantages to this strategy are twofold. Not only does it maximize the married couple’s combined income, but it will also maximize the surviving spouse’s benefit amount. Win-win!
III The Double Dip Strategy
This is another technique for married couples to maximize Social Security. It is often called “Double Dipping.” This strategy works best for couples whose incomes are close to the same and are at full retirement age. Each person files for a spousal benefit, but delays his or her own benefits until a later date. Then, maybe at age70, each spouse would file for benefits based on his or her own earning record. By delaying to age 70, the latest age at which you can file for Social Security benefits, each spouse would end up drawing more money when all was said and done.
It is important to note that this strategy will also work for divorced spouses. Provided you are single or that if remarried, you did so after you turned 60, you can receive spousal benefits to the tune of 50% of whatever amount your ex draws. Then, if your benefit on your own earnings at age 70 will be more than the spousal benefit, you can start drawing on yourself and forgo the spousal benefits. This will net you more money long term.
IV. The Higher Earner Strategy
In this strategy to maximize Social Security benefits, a married couple takes best advantage of the spouse with the higher earnings by having the lower earner apply for spousal benefits as opposed to drawing on him/herself. You are entitled to either 50% of your spouse’s Social Security benefit, or your own, whichever is higher. Again, this makes a case for delaying filing a claim for benefits, because if your spouse retires at age 62, you will receive only about 35% of their benefit rather than half. If your spouse delays receiving Social Security benefits until full retirement age, you will get 50%.
If you are a divorced spouse, you may file for spousal benefits but the reduction in the amount would be the same if your ex-spouse files before his or her full retirement age. But—and this is important, so heads up—if you are a divorced spouse and delay filing for spousal benefits until YOU reach full retirement age, you will get the 50% instead of a lesser amount regardless of when the ex filed for Social Security. So, if you are divorced and are eligible for a divorced spouse’s benefit, and can afford to continue working or delay filing until your full retirement age, your benefits will be higher even if your ex-spouse filed early.To be eligible for divorced spouse benefits, the marriage must have lasted for a minimum of 10 years, or you received support from the ex for that long. You can draw whichever is higher, spousal benefits or your own benefits, but not both.
V. The 35 Year Strategy
If you possibly can, you need to work for at least 35 years to maximize your Social Security benefits. This is true because your benefit amount is based on your highest 35 years of earnings. For every year that you had no income, you get a big fat goose egg—zero. If you haven’t worked or won’t be working for 35 years and have years with no earnings, you would be well advised to keep on working and delay filing for Social Security benefits in order to cancel out those zeros with dollar amounts that will increase your benefits. Not to worry, making less money those additional working years will not cancel out any years of higher earnings.
VI. Don’t Forget Dependents Strategy
A surprising number of people who file for Social Security retirement benefits are unaware that they may be leaving money on the table if they have dependents that could be receiving a percentage of the benefit amount. For instance, if you have unmarried children under the age of 18 living at home, 19 if a full-time high school student, each dependent is entitled to 50% of your full retirement benefit. Nor is this limited to your biological children. It may include a stepchild, an adop
ted child, a grandchild who lives with you as a dependent or a dependent over the age of 18 with a disability that began before the age of 22. Many seniors find themselves starting all over again with raising children because they have grandchildren who must come to live with them for one reason or another. Being able to receive a Social Security dependent benefit would certainly be a big help if you landed inthis situation.
VII. Watch Out for Taxes Strategy
While working after you begin receiving Social Security benefits can help your pocketbook, be careful about working and earning too much. If you are single, under age 66 (the average age full retirement age) and earn more than $15,120 this year; you will have your Social Security check reduced by $1 for every $2 that exceeds that amount annually. This is based on your gross wages, by the way. But, take heart—once you attain age 70, you can make as much money as you want to without it reducing your Social security check. Plus, you don’t lose the money forever. If you file for benefits at age 62, but keep on working and consequently lose part of your money from Social Security, it will be re figured when you reach full retirement age and increased accordingly to make up for what you lost. For 2013, if you are unmarried and get $20,000 annually in Social Security benefits, you won’t owe any taxes on your benefits if you earn less than $15,000. From there, though, it gets sticky:
If you earn between $15,000 and $24,000, every dollar of that money means an additional $0.50 is taxable.
For each dollar you earn over $24,000, an additional $0.85 becomes taxable. Obviously, this could cause quite a bit of your Social Security benefits to be taxed. Married couples are, of course, allowed higher combined incomes than single beneficiaries. But, you would still need to be careful about earning too much to avoid paying a lot in taxes on your benefits.
What if Social Security Still Isn’t Enough? You can use these seven secrets to maximize your Social Security benefits, but it may not be enough help to provide you with the income you want and need to follow through with the plans you have for retirement. So, what can you do?
It would be our recommendation to spend some time learning about the various types of annuities which can provide additional levels of income that is guaranteed for life. In particular, be sure to know the pros and cons about Single Premium Immediate Annuities, Longevity Annuities, and Index Annuities before making any final decisions. These are all different forms of Fixed Annuities that can provide you with protection from significant risks in retirement planning such as market turmoil and life longevity (outliving your assets).
For best results,you should seek the advice and assistance of a licensed and competent financial professional to help you formulate a solution catered to your particular needs. There are a multitude of offerings that each have unique pros/cons, so you could otherwise get overwhelmed with information. Not all financial professionals are created equal, so put some time in finding the right one.
To help you easily gauge a financial professional’s bias towards oragainst annuities, we recommend that you read ‘How To Easily Identify An Annuity Hater’ from Annuity123 .
CONCLUSION:With retirement income being the #1financial concern of many Americans, maximizing Social Security benefits in addition to learning about supplemental lifetime income offerings available via Fixed Annuities should be embraced by us all.
It is our sincere hope that this article puts you one step closer to achieving your financial and lifestyle goals. Happy Learning!*Lifetime income guarantees from a Fixed Annuity are backed by the financial integrity of the Life Insurance company that you decide to form a contract with in providing you with specified income lasting for your lifetime (and your spouse’s lifetime if you elect a joint policy).