Sunday, August 14, 2022

How To Save Money On Social Security

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Understanding Your Investment Account Options

Living On Social Security How To Make Ends Meet $750/Month

Now that youve made the right choice in deciding to save for retirement, make sure you are investing that money wisely.

The lineup of retirement accounts is a giant bowl of alphabet soup: 401s, 403s, 457s, I.R.A.s, Roth I.R.A.s, Solo 401s and all the rest. They came into existence over the decades for specific reasons, designed to help people who couldnt get all the benefits of the other accounts. But the result is a system that leaves many confused.

The first thing you need to know is that your account options will depend in large part on where and how you work.

Avoid The Social Security Tax

Social Security benefits may be subject to federal income tax. How much goes to Uncle Sam depends on a somewhat complicated formula.

To determine what percentage of your benefits are taxable, the Social Security Administration looks at your combined incomealso known as your provisional income. This is your adjusted gross income plus non-taxable interest, like what you earn on municipal bonds or income-producing assets in your Roth accounts, and half of Social Security benefit income.

Unfortunately, its likely that you will have to pay some taxes on your benefits. The only way to avoid paying federal income taxes on your Social Security benefits is to have a combined income below $25,000 , says Brotman. Between $25,000 and $34,000, half of your Social Security becomes subject to federal income tax, and above $34,000 up to 85% of your Social Security income is taxable.

Brotman advises that you should just plan as if you will owe taxes on up to 85% of your Social Security benefits.

You can mitigate these taxes with strategic withdrawals of your non-Social Security retirement income. Money withdrawn from a Roth retirement account is free of income taxes and therefore not included in the calculation for combined income. Strategically drawing down your assets from both taxable traditional retirement accounts and Roth accounts can help you reduce your combined incomeand the amount you may owe in taxes on your Social Securitywithout forcing you to live on less.

Read Your Social Security Statements

Every year, the Social Security Administration mails personalized Social Security statements to retirees and those approaching retirement age. Though it may be tempting to toss these papers out if retirement still feels far away, this information can help you plan for your future. The statement includes:

  • Your estimated monthly retirement benefit
  • How much your child or spouse could receive in benefits if you pass away before retirement
  • The amount of spousal benefit your spouse would be entitled to at retirement
  • Your yearly earnings record

That last part is especially important because if your employer underreports your income or you fail to claim all of your income while youre self-employed for any reason, your Social Security payments could be inaccurate. Fortunately, you can reach out to the Social Security Administration and notify them of any incorrect earnings history you spot.

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Who Qualifies To Use An Able Account

To qualify to use an ABLE account, an individual must have a disabling condition that began before age 26. Individuals over 26 can have an ABLE account as long as their disability began before they turned 26.

You must be able to show that your disability began before you turned 26. This requirement can be met by being approved for disability benefits through SSI or SSDI or by having a written diagnosis from a physician indicating that you have a physical or mental impairment that:

  • is medically provable
  • results in severe limitations in functioning, and
  • is expected to last at least a year or result in death.

If You Already Filed For Social Security Early Consider Withdrawing Your Claim

Social Security COLA Increase for 2019

Did you claim your benefits early and now find that youre shocked by the true costs of retiring on Social Security? If you filed for Social Security within the past 12 months, you can withdraw your claim and restart at a later date if you want to increase your benefits. However, its important to note that if you choose to withdraw, you must repay all the benefits you received up to that point. Still, this could be worth it in the long term to be able to max out your Social Security payments.

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How To Stay On Track

The point of benchmarks isnt to make you feel superior or inadequate. Its to prompt action, coupled with a guidepost to inform those actions, even if that means staying the course. If youre not on track, dont despair. Focus less on the shortfall and more on the incremental steps you can take to rectify the situation:

  • Make sure you are taking advantage of the full company match in your workplace retirement plan.

  • If you can increase your savings rate right away, thats ideal. If not, gradually save more over time.

  • If you have a company retirement plan that enables automatic increases, sign up.

  • If you are struggling to save, many employers offer financial wellness programs or other tools that can help with budgeting and basic finances.

Use these savings benchmarks to get more comfortable with planning for retirement. Then go beyond the rule of thumb to fully understand your potential retirement expenses and income sources. Beyond your savings, think about what you are saving for and how you envision spending your time after years of hard work. After all, thats the reason why you are saving in the first place.

Past performance cannot guarantee future results. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.

View investment professional background on FINRA’s BrokerCheck.


Wait Until Age 70 To Start Collecting Benefits

Procrastination isn’t usually a good thing, but if you can put off starting to collect your Social Security benefits, you can make them bigger. We each have a “full retirement age,” at which we are entitled to receive the full benefits that we’ve earned based on our work record. For most of us, it’s 66 or 67. For each year past that age that you delay starting to collect, your benefits increase by about 8%. So delaying from 67 to 70 will get you checks that are 24% bigger. There are no more increases after age 70, so you might as well start collecting then.

The table below shows how much bigger your Social Security benefit checks will be depending on when you start collecting:

Start Collecting at:

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Understand How The Government Calculates Social Security

Many Americans assume that Social Security benefit amounts are based on your entire working career. In reality, your payments are based on your earnings from the 35 highest income years. If you have not worked for 35 years, every year you didnt work will reduce your benefits. Want to avoid those zeros? Think about working a few extra years to raise your lifetime income average. In addition to helping fill your savings account, this should boost your Social Security benefit.

You Can Claim Social Security Benefits Earned By Your Ex

Save $100’s on Gifts – Living On Social Security

Just because you’re divorced doesn’t mean you’ve lost the ability to get a Social Security benefit based on your former spouse’s earnings. You can receive a benefit based on his or her record instead of a benefit based on your own work record if you were married at least 10 years, you are 62 or older, and you are single.

Like a regular spousal benefit, you can get up to 50% of an ex-spouse’s benefit — less if you claim before full retirement age. And the beauty of it is that your ex never needs to know because you apply for the benefit directly through the Social Security Administration. Taking a benefit on your ex-spouse’s record has no effect on his or her benefit or the benefit of your ex’s new spouse. And unlike a regular spousal benefit, if your ex qualifies for benefits but has yet to apply, you can still start collecting Social Security based on the ex’s record, though you must have been divorced for at least two years.

Note: Ex-spouses can also take a survivor benefit if their ex died after the divorce, and, like any survivor benefit, it will be worth up to 100% of what the ex-spouse received. If you remarry after age 60, you are still eligible for the survivor benefit.

A claiming strategy if youre divorced: Exes at full retirement age who were born on January 1, 1954, or earlier can apply to restrict their application to a spousal benefit while letting their own benefit grow.

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Or Go All The Way And Work Until 70

The longer you hold off receiving your Social Security benefits, up to age 70, the bigger your check. So each month after youve reached your FRA, your payout increases by roughly 0.7% percent , which amounts to 8% per year. If you wait till age 70 then, your payments will be 32% bigger than if you had started taking benefits at 66. Once you turn 70 though, there is no added benefit in postponing payments.

Of course, working until 70 isnt for everyone, and theres no penalty in claiming your benefits when you reach your FRA. At that time, you will receive 100% of your benefit. Its also not a sure thing that waiting until 70 maximizes your lifetime benefit. After all, should you pass away the following year, waiting that long will mean you received far less total benefits than if youd claimed them as soon as you were eligible to. So consider your life expectancy as you make this decision.

Policy Basics: Top Ten Facts About Social Security

Social Security provides a foundation of income on which workers can build to plan for their retirement. It also provides valuable social insurance protection to workers who become disabled and to families whose breadwinner dies.

Eighty-five years after President Franklin Roosevelt signed the Social Security Act on August 14, 1935, Social Security remains one of the nations most successful, effective, and popular programs.

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You Or Your Family Members May Be Eligible For Increased Benefits

Our mission is to deliver Social Security services that meet the changing needs of the public.

It’s not unusual for a benefit recipient’s circumstances to change after they apply or became eligible for benefits. If you, or a family member, receive Social Security or Supplemental Security Income , certain life changes may affect eligibility for an increase in your federal benefits. For example, if your spouse or ex-spouse dies, you may become eligible for a higher Social Security benefit.

To find out if you, or a family member, might be eligible for a benefit based on another persons work, or a higher benefit based on your own work, see the information about benefits on the Social Security website. You can also use the Benefit Eligibility Screening Tool to find out if you could get benefits that Social Security administers. Based on your answers to questions, this tool will list benefits for which you might be eligible and tell you more information about how to qualify and apply.

The questions and answers below are about a few of the life changes that could possibly increase your benefits.

Financial Planners And Investment Advisors

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A financial planner is generally someone who prepares financial plans for their clients. The kinds of services financial planners offer can vary widely. Some financial planners assess every aspect of your financial lifeincluding saving, investments, insurance, taxes, retirement, and estate planningand help you develop a detailed strategy or financial plan for meeting all your financial goals. Others financial professionals call themselves financial planners, but they may offer a more limited list of services. Still other financial professionals provide services to help individuals manage their investmentssome of these professionals are registered investment advisers. Its important to ensure that your financial planner is properly licensed to perform the services you are hiring them for.

Further resources:

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Supplemental Security Income Benefits

Typically, eligible SSI candidates have low earnings due to disability, blindness, or some intervening event before reaching retirement age. However, elderly American citizens or legal aliens who have reached 65 years may also be eligible for SSI benefits.

You must qualify for SSI benefits separately from Social Security. SSI requires people to earn low income and own few countable resources with reporting and continued qualification. But SSI and savings account can still happen.

As of 2021, the qualification criteria for SSI require these countable resources to be under $2,000 for an individual. The limit is $3,000 for a couple who live together. That includes resources that count towards the set limit, such as bank accounts, cash, stocks, bonds or similar assets.

However, some assets are not considered countable resources. These include your primary home and the land it is on, household goods or personal effects, a car, burial plots or funds of $1,500 or less, and insurance policies with a combined value of under $1,500.

So, if your savings account contains more than $2,000 in the bank, you may not qualify for SSI benefits. However, if what you receive as Social Security combined with the countable resources is less than the set limits, you may receive some SSI benefits. But the SSI amount will depend on what you are getting.

Strategies To Maximize Social Security Benefits

Social Security benefits, when combined with savings from a 401 and individual retirement account, can help you retire the way you want. Of course, not everyone earns the same amount from Uncle Sam.

A Social Security calculator can help you estimate the payments youll receive, but how do you ensure that youre not shortchanging your future self? Whether you have a few months or a few decades until retirement, here are 10 tips for maximizing your Social Security benefits.

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Questions To Ask Yourself Before Retiring

As you plan, consider these important questions:

  • At what age do you plan to retire?

  • Can you participate in an employer’s retirement savings plan? This includes 401 plans and traditional pension plans.

  • If you have a spouse or partner, will they retire when you do?

  • Where do you plan to live when you retire? Will you downsize, rent, or own your home?

  • Do you expect to work part-time?

  • Will you have the same medical insurance you had while working? Will your insurance coverage change?

  • Do you want to travel or pursue a costly, new hobby?

Your Monthly Social Security Benefits Increase The Longer You Wait To Claim

Hereâs How Much Money Youâll Get From Social Security

You can collect Social Security benefits as soon as you turn 62, but taking benefits before your full retirement age means a permanent reduction in your payments of as much as 25% to 30%, depending on your full retirement age.

If you wait until you hit full retirement age to claim Social Security benefits, youll receive 100% of your earned benefits. But you can also get a big bonus by waiting to claim your Social Security benefits at age 70 your monthly Social Security benefit will grow by 8% a year until then. Any cost-of-living adjustments will be included, too, so you don’t forgo those by waiting.

Waiting to claim your Social Security benefits can help your heirs as well. By waiting to take her benefit, a high-earning wife, for example, can ensure that her low-earning husband will receive a much higher survivor benefit in the event she dies before him. That extra income of up to 32% could make a big difference.

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How Much Can I Earn And Still Get Benefits

When you begin receiving Social Security retirement benefits, you are considered retired for our purposes. You can get Social Security retirement or survivors benefits and work at the same time. However, there is a limit to how much you can earn and still receive full benefits.

If you are younger than full retirement age and earn more than the yearly earnings limit, we may reduce your benefit amount.

If you are under full retirement age for the entire year, we deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2021, that limit is $18,960.

In the year you reach full retirement age, we deduct $1 in benefits for every $3 you earn above a different limit. In 2021, this limit on your earnings is $50,520. We only count your earnings up to the month before you reach your full retirement age, not your earnings for the entire year.

If your earnings will be over the limit for the year and you will receive retirement benefits for part of the year, we have a special rule that applies to earnings for one year. The special rule lets us pay a full Social Security check for any whole month we consider you retired, regardless of your yearly earnings.

Read our publication, How Work Affects Your Benefits, for more information.

When you reach full retirement age:

How To Get The Maximum Social Security Benefit

The maximum Social Security benefit in 2021 is $3,895 per month or $46,740 for the year. Most people do not get that much, though. In order to receive the maximum amount, you would have had to postpone receiving benefits until age 70. You also would need to have earned the maximum taxable amount for at least 35 years. For people who start receiving benefits at full retirement age , the maximum amount is $3,113. That said, the average Social Security check as of 2021 is $1,543, according to Forbes. To make sure you have enough in retirement to maintain your current lifestyle, consider talking to a financial advisor.

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