Here are three ways to get more money out of your Social Security checks.
1. Work a Full 35 Years or More
The Social Security Administration calculates your benefit based on your lifetime earnings. These earnings are taken from the 35 years in which you earned the most income, adjusted for inflation. If you only worked for 30 years, this formula will incorporate five zeroes. Try to work at least 35 years, if you can.
Since the formula focuses on your 35 highest-earning years, working longer also allows you to replace some of your lesser-earning years. If you’re earning significantly more than you were in the past, your new years will erase those lower years, boosting your benefits.
2. Wait to Collect Your Benefits
A simple way to increase your Social Security payments is by waiting to take your benefits. It can be tempting to take your benefits early, but for every year you wait, you can earn an additional 8 percent in benefits.
Each one of us has a full retirement age, which is typically around 66 or 67 these days. So, if you start collecting benefits at 64 instead of 67, your checks will be 80 percent what they could have been. The only time we recommend taking your benefits early is if you believe you’ll have a shorter-than-average lifespan.
3. Avoid Social Security Tax
If you plan on working in retirement to supplement some of your income, be aware of the tax consequences. Anywhere from 50 to 85 percent of your benefit payment can be subject to federal taxes. This happens because the IRS adds your nontaxable interest and half your Social Security income to your adjusted gross income.
If your annual income reaches $25,000-$34,000 for single filers or $35,000-$44,000 for joint filers, up to half of your Social Security income is subject to tax. If you earn more than this, 85 percent of your benefits are subject to tax. For a tax free retirement in New Jersey, be sure to speak with a retirement planner.
These are three of the best ways you can get more money out of your Social Security benefits. To discuss your financial future, contact the top financial advisors from Leonard Financial Solutions. We can take a look at your financial picture and determine the best ways to make your retirement comfortable and tax free.