Introduction
Social security is the income that is provided by the government to the retired citizens. When you are near retirement age, the decisions that you make impact the amount of money that you’ll get. So you need to be very careful while making any decision. Let us see how to maximise your social security benefits.
Find your full retirement age
Choosing the best retirement age will help you to get the most benefits of social security. To get the most benefits of social security, you should claim it when you reach your full retirement age.
The people who are born between the years 1943 to 1954, their full retirement age is 66 years, and for people born in 1960, the full retirement age is 67 years. The full retirement age is the same age when a person can enjoy the 100% benefits of social security.
How to become eligible?
You must have earned 40 credits in your whole career to become eligible for getting social security benefits. In one year you can earn four credits . Thus it will take 10 years for you to get social security benefits .
How to calculate the benefits?
You should have 35 years of earning. But there is always an option of increasing your social security benefits. The factors determining your social security benefits are the age at which you retire etc.
Increase in social security benefits
If you wait for longer after your full retirement age then you get more benefits. Waiting for longer after you attain your full retirement age, the benefits increase by 8%. This will help your heirs as well.
Social security spousal benefit
The spouse can take the social security benefits of his spouse. These benefits are upto 50% of the spouse’s social security benefit. As your benefit decreases if you claim it before your full retirement age, in the same way the spousal benefits will also decrease.
Also if you take your benefit before the full retirement age and after that you switch to spousal benefit, you will get decreased benefits.
Pensions might reduce social security benefits
If you are getting a pension from a job which does not have social security taxes, social security will decrease.The examples of such a reduction in social security benefits are the people who worked for the public education system, railroad workers etc.
The factor that affects social security benefits is called Windfall Elimination Provision (WEP). This reduces your benefits depending on how many years you’ve worked for the job that does not have social security taxes.
The other factor which affects your benefits is Government Pension Offset (GPO). This reduces the benefits of your spouse and the survivor benefits by two third of the non covered pension.
Survivor benefits for spouses and children
You can get it if your spouse dies before you. But you can either get your social security benefit or your spouse’s benefit at a time. You cannot get the benefits of both. If you have reached your full retirement age then you’ll get 100% benefits of what your spouse was getting.
Also you can get survivor benefits at the age of 60 years. But you will get less payment. This is because you have claimed it before your full retirement age. You should take the survivor benefits at the age of 60 and then you can take your own retirement benefits at the age of 70.
If you do this your own benefits will increase and the survivor benefit will also be the maximum. But if you marry before the age of 60, then you’re not eligible for the survivor benefit. But if you marry after the age of 60, then you get your spouse’s earning benefits.The children who are of 18 years and eligible also get social security survivor benefit.
Claiming ex spouse’s social security benefits
You can also get the social security benefits of your ex spouse. These benefits are based on the earnings of your former spouse. If you claim for the benefits before your full retirement age, the benefits you get are less than 50%.
Also your ex spouse will not get to know this because you apply directly through the social security administration. Moreover, if you take the social security benefits of your ex spouse, his or her benefits will not be affected. Neither the benefits of your ex spouse’s spouse will get affected.
Paying taxes on social security benefits
There are some cases when the social security administration does not charge taxes on your social security benefits when your provisional income is less than $25,000 if you are single and $32,000 if you are married.
There are methods by which you can lower your taxes on your Social Security benefit such as you can shift money from traditional IRA to a Roth IRA. This will help you to lower your taxes on social security benefits.
Beware the social security earnings test
Some people work after claiming the social security benefits before their full retirement age. They work because they want to earn more money. In the social security earning test, if you earn $2, then you have to lose $1.
But once you reach the full retirement age, there is no Social Security earnings test that will apply to your benefits. You can earn unlimited money according to the work you do.
When to apply for social security?
Age is one of the most significant factors which determines how much benefits you are going to get from social security.
FRA ( Full Retirement Age)
If you want to become eligible for getting the social security benefits , then your minimum age must be around 62 years. But if you want to get full benefits of social security, that is 100% Job benefits, then you have to first reach the full retirement age.
Full retirement age is different for different people depending upon the year in which they were born.
If Someone is born in the year 1960 or later then his full retirement age is 67 years.
Social security at 62 years?
If the employer starts taking their social security benefits at the age of 62 years, then their monthly income will decrease drastically. This is the reason behind many people waiting to reach the full retirement age in order to get the social security benefits.
If there is a large gap between your current age, that is 62 years and your full retirement age, then your monthly installments will be very less depending upon that gap between the two ages.
Why might it make sense to wait?
If you want to earn more money and more monthly instalments, then you should wait to reach the age of 70 years before taking the social security benefits. Thus many seniors wait to reach the age of 70 years to get the social security benefits if their health is good.
How to cut social security taxes?
Convert traditional IRAs to Roth IRA
If you withdraw from a traditional IRA, then you have to pay more taxes, but if you withdraw from a Roth IRA, you do not have to pay much tax. If your account is old, that is around five years or more, and your age is about 59.5 years, then all your transactions are tax free.
You should not convert your whole amount at once. This is because you might have to pay a huge amount of taxes. So you should only convert that amount of money which is required to you every year. This way you can save on taxes.
Contribute money in IRA to charity
This is another method to save money on your taxes. You have to transfer the money from your IRA account to a qualified charity. This is known as qualified charitable distribution (QCD) and will help to lower the taxes on social security income.
Delay claiming social security benefits
In this, you have to delay in claiming your social security benefits, even after you reach your full retirement age. If you claim your social security benefits at the age of 70 years that is more than your full retirement age then you will get additional 8% benefit in the form of delayed retirement credit.
Make your taxable portfolio tax efficient
The tax investment portfolio can lower your tax. In the similar way it can also lower your taxes on Social Security benefits whereas a taxable portfolio increases the interest on Social Security amount. So you should choose a tax efficient portfolio.
Social security changes in 2024
Social security checks are bigger
Every year the social security administration tells about the cost of living adjustment, COLA. In 2024, the COLA has increased, which means that the recipients have to pay higher monthly instalments .
Social security taxes are rising
The taxes that the employees have to pay on the Social Security amount are also increasing in 2024.
Conclusion
In this article, we studied social security in detail. We firstly looked at various ways which help you to maximise your social security benefits. The age at which you claim your social security benefits play a major role in determining the amount you will get.
In addition to this, we also studied how to become eligible for getting the social security benefits, and how to calculate the amount that you will get as a social security benefit. The method to apply for social security benefits is also discussed.
Then we discussed social security taxes. The taxes which the employers have to pay on social security benefits are called social security taxes and we also looked at ways to cut down and minimise these taxes. At last we mentioned the changes about social security that took place in the year 2024.
