Do you expect Social Security to cover the bulk of your senior living expense? If you save diligently for many years, you may amass enough of a nest egg to rely less heavily on Social Security. But if you don't manage to do that, those benefits could become a major income source -- one you need to maximize as much as possible. With that in mind, here are a few key strategies to employ so you get the most from Social Security.
1. Boost your earnings while you can
The Social Security benefit you're entitled to during retirement will hinge on your average monthly wage over your 35 highest-paid years in the workforce, so the more money you earn, the higher a benefit you'll be in line for. Now boosting your earnings may be easier said than done because you can't exactly demand raises left and right and expect to get them. But one thing you can do is take on work on the side to boost your income.
These days, a lot of people have a side hustle, and getting one could not only boost your wages for Social Security purposes but also put more money in your pocket to pay your bills. Furthermore, if you've struggled to save for retirement, getting a side gig could make it easier to fund an IRA or 401(k) plan so that you're a bit less reliant on Social Security down the line.
2. Delay your filing as long as possible
You're entitled to your full monthly Social Security benefit, based on your wage history, once you reach full retirement age (FRA). FRA is either 66, 67, or somewhere in between, depending on when you were born. But you don't have to sign up for benefits once you reach FRA. In fact, for each year you delay your filing, up until the age of 70, your benefits will increase 8% -- and that boost will remain in effect for the rest of your life.
Say you're entitled to $1,500 a month in Social Security at an FRA of 67. If you wait until 70 to file, you'll be in line for $1,860 instead.
3. House your savings in a Roth IRA
Many seniors are shocked to learn that Social Security benefits are, at times, subject to federal taxes. Basically, the more income you have outside of Social Security, the more likely you'll be to get taxed on those benefits.
To see if that's apt to happen to you, you'll need to calculate your provisional income, which is your non-Social Security income plus 50% of the benefits you collect each year. You could be taxed on up to 50% of your benefits if your provisional income falls between $25,000 and $34,000 as a single tax-filer, or between $32,000 and $44,000 as a joint filer. And beyond these limits, you risk taxes on up to 85% of your benefits, regardless of your tax-filing status.
Keeping your provisional income low can help you keep more of your benefits. But wait -- if you don't have income outside of Social Security to fall back on, you might struggle in retirement, so that's not a great solution, right?
Well, actually, there's a workaround that allows you to keep more of your benefits without depriving yourself of outside income -- house your retirement savings in a Roth IRA. Roth IRA withdrawals are tax-free and aren't counted as taxable income, so that way, you get the best of many worlds -- money flowing in, a lower tax burden, and higher benefits to enjoy.
Secure your retirement
There's a strong chance Social Security will play a key role in your retirement. Take the time to develop different strategies that allow you to make the most of that income stream.