The bigger your Social Security benefits are, the less income you'll need to generate from other sources such as your retirement savings. This can be particularly important if you are behind on saving for retirement, or have suffered some unfortunate losses from your investments. Fortunately, there are ways to increase your Social Security benefits both during your working years and after you retire.
Delayed retirement credits
You can claim your Social Security benefits as early as age 62, but doing so comes at a price. Claiming your benefits before you reach "full retirement age" results in a reduction of your benefit checks for the rest of your life. On the other hand, waiting until after full retirement age to start receiving benefits will make your benefit checks larger, thanks to the addition of delayed retirement credits. If you wait until age 70, you'll max out said credits. In fact, people with a full retirement age of 67 (which would be everyone born in 1960 or later) would increase their Social Security benefits by 24% if they waited until age 70 to claim them.
Did you know that your Social Security benefits may be taxed? If you have sufficient taxable income from other sources, up to 85% of your Social Security benefits could be taxed at your federal income tax rate. This could result in a significant reduction of the Social Security benefits you get to keep each year.
To keep your Social Security benefits from being taxed, it's important to get as much of your retirement income as possible from nontaxable sources. The Roth IRA is the easiest way to convert your retirement savings into a nontaxable source of income. Ideally, you'll contribute to both a traditional retirement savings account and a Roth IRA during your working years, so that you'll have a significant percentage of your money in the Roth IRA; then you can plan your retirement savings withdrawals to keep your taxable income below the Social Security taxation threshold each year.
If you weren't able to build a significant balance in a Roth IRA before you retired, all is not lost -- you can still do a Roth conversion, taking a portion of the money in your traditional IRA or 401(k) and transferring it to a Roth account. However, you'll have to pay taxes on the money you move over to the Roth account when you file your tax return for the year. If you're moving over a large amount of money, this can result in a horrifically high tax bill. You can reduce the hit to your income by splitting the conversion out over several years instead of doing it all at once.
Survivor and spousal benefits
Your Social Security benefits may be significantly larger if you take advantage of some of the other programs that the agency offers. Widows and widowers can claim survivors benefits based on their deceased spouse's earnings; waiting until your full retirement age to claim those survivors benefits means you could receive 100% of the Social Security benefits that your spouse had earned. If your spouse's income was higher than your own, this could be a significant improvement.
If your spouse is still alive and had significantly higher lifetime earnings than you did, then spousal benefits may be a better deal for you than your own benefits. Spousal benefits can be as much as 50% of your spouse's regular Social Security benefits. If your spouse has already applied for Social Security at the time you apply for benefits, you'll be automatically granted spousal benefits if they would be higher than your own. Otherwise, you'll need to file a claim specifically for spousal benefits to be considered.
Believe it or not, if you're divorced you may still be eligible for survivors or spousal benefits through your former spouse. If your marriage to your former spouse lasted at least 10 years and you're now unmarried and 62 or older, and your ex is entitled to Social Security benefits, you can file a claim for benefits based on his or her earnings. That's one way to get a lasting legacy from your former marriage.
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