Social Security planning is a critical step in the financial planning process. While it provides a steady stream of income for most retirees, it can be a taxable benefit for many others, including disabled workers and their families and, in some cases, a surviving spouse and children. Social Security is the only retirement income backed by the United States government and guaranteed for life. Social Security is an income stream that can be elected by many different strategies, so it’s imperative to choose carefully. Whether a high-income earner or widower, it’s important to be strategic about how it fits into a wealth management plan. If you’re wondering how to maximize Social Security benefits, consider these strategies to get the most from your benefits.
What are the Social Security Benefits?
Social Security benefits are based on a few factors, including how long you’ve worked, how much you’ve earned, and how many credits you have accrued. Figuring out the best time to apply and which benefits you are eligible for depends on many factors and can be confusing. With more than 2,700 different rules guiding the program’s payout, it’s critical to have a clear understanding of how this benefit can support you the best. While there is no one-size-fits-all approach, different strategies can be utilized to get the most out of your benefits. Consider the following:
Delay your claim.
Each worker is entitled to a full benefit amount, or your Primary Insurance Amount (PIA), at their full retirement age (FRA). You are entitled to claim as early as 62 (with a penalty) or defer to up to age 70 (with an increase). Your FRA depends on your birth year. Individuals born between 1943-1954 who decide to claim at age 62 can expect an approximate 25% reduction in your benefit versus delaying and claiming at your FRA of 66. Wait until age 70, and your benefit increases by nearly 32%. For those born in 1960 and after, your FRA is age 67. Keep in mind that Medicare eligibility is not until age 65, so a retiree at age 62 who elects Social Security benefits still has a 3-year gap until they can enroll in Medicare coverage.
Work for at least 35 years.
Another way to maximize your benefits is to work longer, even if only for a year or two more. Your benefits are based on your 35 highest-paying working years when calculating your PIA. If you have worked less than that, a zero will be used in these calculations for non-earning years. Working longer can negate any zeroes and make a big difference in the size of your benefit.
Collect social security spousal benefits.
If you are married or were married, collecting Social Security spousal benefits is another way to increase your benefits. You may qualify if you:
- Lack sufficient work history to claim on your own.
- Your spousal benefit would be larger than the benefit you are entitled to.
- You’re divorced, and your marriage lasted at least 10 years, and you didn’t remarry.
To claim these benefits, you must be at least 62 years of age or have a qualifying child under your care. A qualifying child is a minor under the age of 16 or any child collecting Social Security disability payments. If divorced, the same stipulations apply; benefits are available once the individuals reach 62 years of age.
Generally, a married individual is entitled to a full spousal benefit equal to 50% of your spouse’s PIA. However, if you take your spousal benefit before FRA, your monthly payment will be reduced.
Apply for survivor benefits.
Widows or widowers may be able to increase their monthly retirement check by applying for survivor benefits. When one spouse dies, the surviving spouse can retain the larger of the two. It’s important to keep in mind age discrepancy, life expectancy, and the health of each spouse when trying to maximize benefits, and advisors recommend that the higher-earning spouse wait as long as possible to claim benefits. This can offer the lower-earning spouse a better benefit as a widow or widower.
Avoid or minimize the social security tax.
Social Security benefits may be subject to federal income tax depending on provisional income. Provisional income is the adjusted gross income and nontaxable interest, like wages, interest, dividends, and bonds, plus half of your Social Security benefit income. Generally, anywhere from 50% – 85% of this income may be taxable. You can minimize or mitigate these taxes by:
- Staying below the taxable thresholds ($25,000 for single filers)
- Managing your other retirement income sources.
- Taking IRA withdrawals before signing up for Social Security.
- Saving in a Roth IRA.
How Jacobi Wealth Advisors Can Help
A good financial planner can help an individual or family understand how to maximize their Social Security benefit and also how to maximize it as it relates to their overall plan. Often, retirees have multiple sources of income, including taxable retirement savings, non-qualified investments, cash-alternative assets, a pension, or annuity income streams. A well-developed plan can not only help layout when to turn each source on to maximize ROI but also to encourage longevity of the asset for lifetime income purposes. When searching for retirement planning near me, consider choosing Jacobi Wealth Advisors. Contact us today to speak with an advisor.
Jacobi Capital Management, LLC, a Registered Investment Advisor
Securities are offered through LPL Financial, Member FINRA/SIPC. Investment Advisory Services are offered through Jacobi Capital Management, LLC, and SEC Registered Investment Advisor. Jacobi Capital Management, LLC is an entirely separate entity from LPL Financial. Jacobi Capital Management, LLC employs (or contracts with) individuals who may be (1) registered representatives of LPL and Investment Advisor Representatives of Jacobi Capital Management, LLC; or (2) solely Investment Advisor Representatives of Jacobi Capital Management, LLC. Although all personnel operate their businesses under the name of Jacobi Capital Management, LLC or Jacobi Wealth Advisors they are each possibly subject to the differing obligations and limitations and may be able to provide differing products or services. Please speak with your financial professional for more information or see their personnel bio pages on the Jacobi Wealth Advisors website at www.jacobiwealth.com