With so many changes happening to the tax code and how retirement benefits are treated, it can be easy to lose sight of the latest happening with Social Security. What new rules have been implemented? Are there important loopholes that might affect you? While the full impact of the new regulations remains to be seen, you can still use these ten tips to maximize your Social Security benefits.
1: Start/Stop/Start Is a Thing
It’s possible, and sometimes very beneficial, to start taking benefits before your full retirement age, stop for a short time after you reach full retirement age, before finally collecting them again later in life. This clever method gives you the advantages of both early and late benefit collection. One caveat: because of how complex this strategy is, it’s highly recommended that you seek help from your planner to get the best return possible.
2: Divorcees Can Collect Spousal Benefits on One Another
If you are willing to wait until full retirement age to claim benefits, you can claim on your ex’s work history under the spousal benefits rule. This can help you delay collecting your own benefit, allowing it to grow until you reach age 70. However, before you reach FRA, you qualify to take your divorced spouse benefit only if you are not eligible for an equal or higher benefit based on your own work history. Other eligibility requirements include the length of marriage before your divorce and whether or not you have remarried, so depending on your situation, you should ask your financial advisor for more information.
3: Spousal and Survivor Benefits Stop Growing at FRA
While there’s certainly an advantage to delaying your own benefits as long as possible, these other two benefit categories won’t get any larger after full retirement age. Spousal benefits can be taken as early as age 62, and survivor benefits at 60, although taking either of those early results in a lower benefit amount, much like your the benefits on your own work history. Unlike your primary benefit, however, which can grow by as much as 24% if you delay taking it past full retirement age, spousal and survivor benefits don’t grow past their full amount. You may be able to maximize your benefit by taking spousal or survivor benefits when you reach FRA, and then waiting to take your primary benefit.
4: You Can Change Your Mind
Did you begin claiming too early? If you don’t mind paying back your benefits, you can withdraw your enrollment and delay it for a later time. The window for changing your mind is 12 months, so be sure your application is withdrawn before the year’s up. You’ll also need to have all personal, spousal, and child benefits repaid, as well as have notarized statements from family members who had already received benefits consenting to the repayment and application withdrawal. While just as complex, this is different from the Start/Stop/Start method; you can talk to your financial planner for more details.
5: Working in Your 60’s Can Boost Benefits
While Boomers are retiring at the same rate as the generation before them, there are big advantages to sticking it out in the workforce. The one-third of Boomers who have continued to work to age 68 have opportunities to increase their final benefit payments, as well as the benefits of their loved ones. Spousal and child benefits can increase with more productive years added to the total work history, and there is also increased opportunities to put more away in a nest egg.
6: Online Social Security Calculators Have Limits
Don’t rely solely on the tools at the Social Security website to explain your financial situation in full. The calculators, while useful, don’t fully account for factors like inflation or wage growth. Results are also skewed for dependent calculations, such as spousal or survivor benefits. For the best picture of how much money you’ll get in retirement, it’s best to consult your financial professional.
7: Kids of Older Parents Can Collect
Did you start a family or adopt later in life? There’s good news for you and your dependents! Retirees with children still under age 17 – or 19 in college – can file for child benefits at the same time you’re receiving retirement benefits. This added payment can do a lot to boost saving for the cost of college and other large expenses.
8: Custodial parents of Collecting Kids Can Benefit
Likewise, if your child is collecting under this plan because your spouse or ex-spouse is collecting, you can collect on parent benefits. Your spouse or ex-spouse does not have to be living in order for this benefit to apply. You are qualified to receive these benefits until your child turns 16.
9: Families Have a Cap
With so many benefits available to family members, it’s not surprising that the government has placed a maximum benefit amount on what a household can receive. Not including disability payments (which are subject to separate rules and caps), the payment for a family of a worker at age 62 cannot exceed:
- 150% of the first $1,144 of the worker’s Primary Insurance Amount (PIA), plus
- 272% of the worker’s PIA between $1,145 and $1,651, plus
- 134% of the worker’s PIA between $1,652 and $2,154, plus
- 175% of the worker’s PIA over $2,154.
So let’s say that Alice has a Primary Insurance Amount of $2,200, and her minor daughter and ex-husband are collecting benefits. Total benefits between the two of them are capped at $3,845.50.
10: Taxation is Short-sighted
Currently, social security beneficiaries pay taxes on up to 50% of their benefits when their income reaches $34,000 for singles and $44,000 for joint filers, and then pay as much as 85% of the benefits for incomes over that. Since these thresholds aren’t adjusted for inflation, however, it won’t be long before most beneficiaries are paying the 85%. As incomes rise, along with the amount of money needed to live comfortably in retirement, we should see most all income being taxed at these amounts.
While some of these “secrets” are more surprising than others, all can greatly affect how much you’ll finally receive in retirement. You need to understand them and research your best options well in advance of taking benefits. Since these rules are also likely to change over time, any concerns about how they will affect your retirement plan should be addressed with your financial professional. Don’t let what you don’t know limit your ability to grow wealth and retire financially independent.
This information is not intended to be legal or tax advice. The author can provide information, but not advice related to social security benefits. Clients should seek guidance from the Social Security Administration regarding their particular situation. Social Security benefit payout rates can and will change at the sole discretion of the Social Security Administration. For more information, please consult a local Social Security Administration office, or visit www.ssa.gov.
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