10 Tips for Increasing your Social Security
Social Security is commonly perceived as a safety net for most United States citizens. Currently, 51 million Americans are benefiting from the economic assistance that the Federal program has to offer. Benefits are available to some individuals due to certain requirements and socially recognized conditions, such as poverty, old age, disability, and unemployment. These benefits include retirement income, health care for the aged, and disability coverage for entitled workers and their dependents.
Retirement benefits are especially helpful to those who have been employed for a required number of years. Those who are eligible can receive a portion of their retirement benefits when they reach age 62 in the form of a monthly check that’s typically adjusted each year for inflation. The amount received is dependent on the outcome of an earnings test. The size of the benefit will be reduced if too much money is earned during this period. If an individual chooses to wait until they reach age full retirement age, they will be eligible to receive full benefits, which may be a perk to most. Benefits are increased by 8% for each year that claims are delayed, until age 70. If you wait to claim Social Security until you are full retirement age, will you receive the highest payout? Below are tips that may help increase your Social Security benefit.
Delay Your Claim. Many assume they should immediately claim Social Security at age 62, while in reality their benefits are being reduced by 25 to 30% by doing so. Likely, there are a handful of helpful claiming strategies that can increase your Social Security income for a lifetime. Instead of being amongst the impulsive majority who begin claiming at 62, delay your claim until age 70 in order to increase your benefit checks by 7 to 8 percent each year. That could result in an increase of 76% compared to collecting at age 62! Smaller payments allotted over a longer period of time are given to retirees who sign up at a younger age. On the other hand, those who are patient and delay their claim are granted more insurance by outliving their assets and are also given larger checks for the rest of their lifetime.
If you decide to claim immediately at age 62 you may be disappointed to discover that your checks are being reduced. It used to be that you would have another option; a free loan.
However, the Social Security Administration recently changed the rules on this one. You only have the option to pay back what you’ve received without interest within the first twelve months of your initial filing date. Keep in mind that there is money to be lost if you pass away shortly after paying back the benefits, so this is a good suggestion for those with a long life ahead of them.
Continue Working. After claiming Social Security it is quite beneficial to continue working as long as you possibly can. Initially, your checks will be reduced but the payouts gradually increase at a later date. For example, in 2013 Social Security beneficiaries are capable of earning up to $15,120 without penalty. Once they reached the earnings cap their checks were reduced by 50 cents for every dollar earned over the limit. Currently the earnings limit increases to $40,080 at full retirement age, and fortunately benefits are only reduced by 33 cents for each dollar earned above the earnings limit. Once an individual reaches retirement age, their earnings are recalculated and they are granted a credit due to their prolonged employment.
Life Expectancy. Life expectancy plays an immense role when it comes to Social Security. It is suggested that single men should claim social security at an early age because they have a shorter life expectancy. In opposition, women should delay their claims because they are more likely to live longer than their counterparts. This helpful strategy does not apply to couples. Social security payouts of up to 50 percent are granted to select couples based on his or her own working record. This situation is particularly beneficial when one spouse is unemployed or has earned significantly less than their partner. The low-earning spouses must wait until the “full retirement age” to collect the full 50 percent that they are entitled to. For those born between 1943 and 1954, it is suggested that they wait until age 66 because if they decide to collect before the “full retirement age” their benefits are permanently reduced.
Claim & Suspend. Claiming and suspending is a great option for married couples. If the lower earning spouse claims Social Security at age 62 and the higher earning spouse delays their claim as long as possible, they can effectively maximize their payouts. Initially, the lower earning spouse will receive smaller payouts based on their own working record. The higher earning spouse continues to work and is readily able to earn delayed retirement credits until age 70. The benefits cannot be received by the lower earning spouse until the higher earning spouse files for retirement benefits. Claiming and suspending maximizes a couples benefits over a life time, including survivor’s benefits. Both members can have a piece of mind knowing that there are higher benefits available when they are needed. Social Security checks will noticeably increase by 7-8 percent until the age of 70 each year that claims are delayed.
Claim Twice. Claiming Social Security twice is a smart option for dual earning couples once they reach their full retirement age. In the first instance, one spouse will file and suspend their claim, allowing the other spouse to claim a spousal benefit. Both counterparts are able to continue working after their full retirement age without restrictions on earnings. They are able to acquire delayed retirement benefits to their own Social Security records. Secondly, they should claim themselves using their own work records when they reach age 70. Due to delayed retirement credits, they will receive a higher monthly benefit. Claiming Social Security twice is especially beneficial to couples who earn equally high income. You are only allowed to file and suspend at your initial claim so be sure one of you is ready to collect.
Include Family. When there are other family members involved in your decision making process, there are strategies to protect them as well. Social Security recipients can protect their family members if they are disabled or have a child under the age of 16. By securing additional Social Security payments, a child is eligible for up to 50 percent of the retiree’s full benefit. The recipient is also able to secure additional payments for their spouse, even if the spouse is under the age of 62 if they are caring for a dependent child. Typically, benefits allotted to the family members are capped at 150 to 180 percent of the deceased’s benefit and anything above this percentage is compromised. They will find that their benefits are reduced but the retiree will not be affected. If a divorce is in the cards, an ex-spouse is still eligible to obtain Social Security benefits under certain conditions. First and foremost, the marriage must have lasted at least ten years. The divorced spouse also must be over the age of 61. If they happen to remarry, they are not eligible to receive these benefits. Also, the working spouse will not be affected by this change.
Survivor Benefits. Full Social Security retirement benefits are rightfully available to widows and widowers beginning at age 60. This strategy is quite beneficial for women because they are typically younger, and live longer lives than their husbands. Husbands are suggested to wait until age 70 to sign up for Social Security in order to ensure that their wives will receive the maximum monthly survivor’s benefits. In special cases, the surviving spouse is entitled to collect as early as age 50 if they are disabled. Dual earning couples can claim 100 percent of the retirement benefits based on their own working records and are still eligible to claim a reduced widow’s benefit at age 60.
Minimize Taxation. Many people do not realize that they have to pay Federal income tax on their Social Security retirement benefit. Generally, the more money you make the more you are taxed. By minimizing your taxes, you will still be left with enough money in your savings that will appreciate over time while keeping up with inflation. Funds are also increased to insure that the retiree can meet their daily expenses. There are no cookie-cutter solutions; therefore, every situation needs to be evaluated based on individual circumstances.
Benefits are not taxable for those who rely solely on their Social Security income. On the other hand, those who have other sources of income may have to pay Federal and possibly State income tax on part of their benefit if their Social Security retirement benefit exceeds a specific amount. As much as 85% of your Social Security retirement benefit may be taxable if your Modified Adjusted Gross Income plus half of your Social Security benefit is above the following limits:
Base Amount (Benefit Not Taxable)
50% of SS Benefit is Taxable
85% of Benefit is Taxable
|Single, Head of Household or Qualifying Widower|
Less than $25,000
Between $25,001 and $34,000
Greater than $34,000
|Married Filing Separately (not living together for any part of the year)|
Less than $25,000
Between $25,001 and $34,000
Greater than $34,000
|Married Filing Jointly|
Less than $32,000
Between $32,000 and $44,000
Greater than $44,000
The following items are included in your Modified Adjusted Gross Income:
- Taxable Pensions
- Other types of taxable income
- Tax-exempt interest income
- Normally excludable income (i.e. Interest from Series EE savings bonds or ‘Patriot’ bonds)
- Foreign earned income of U.S. citizens and residents.
Defer Your Income. If you are a retiree living on a fixed income, every penny you have is important. Unfortunately, even for the IRS every penny is important. That is why we see retirees whose income after retirement exceeds the limits prescribed by the IRS end up paying taxes on their Social Security benefit. The good news is that you can reduce the taxes on your Social Security benefit by deferring the income you receive from other sources. For example, many retirees have certificates of deposit that generate interest income. If you aren’t relying on the income, you may be accumulating the interest each year. Even if you aren’t receiving the income, you are paying taxes on it each year and this interest is included in your Modified Adjusted Gross Income for Social Security taxation. If you don’t need the income, consider repurposing the funds into a tax-deferred vehicle such as a fixed annuity. A single-premium annuity provides a fixed rate of return, giving you the peace of mind of knowing how much money you are going to earn. The interest you receive will grow on a tax-deferred basis and is not included in your taxable income until you make a withdrawal.
Annuities have many advantages and many disadvantages. Check with a financial advisor to see if an annuity may be suitable for you.
Advantages of a Fixed Annuity
- Fixed annuity contracts offer compound growth without anxiety about fluctuations in the stock market
- Income taxes are deferred
- Interest rates are generally competitive
- Proceeds paid to a named beneficiary are exempt from probate
- Proceeds may also be exempt from state inheritance taxes
- You may have the right to take 10 percent (or more) of the account value annually without paying surrender charges (but you are subject to the IRS penalty on withdrawals made before age 59½)
- If the owner has a medical need for long-term care in a nursing home, tax-deferred earnings may be withdrawn, subject to state laws
- Switching to another company can be done without incurring any income tax liability (see Section 1035 of the Internal Revenue Code)
- Values may be transferred from a life insurance contract to a tax-deferred annuity through a Section 1035 exchange
- You may turn the accumulated account value into a stream of income that you cannot outlive, though the amount you receive may be higher using other payout options
- You may take withdrawals at some future date when your personal income tax bracket may be lower than it is during your peak earning years (subject to penalty and surrender charges)
- Depending on your state, account values may be protected from creditors
Disadvantages of a Fixed Annuity
- The tax-deferred growth will ultimately be taxed, perhaps to a beneficiary in a higher income tax bracket
- There is no step-up in basis at death, and capital gains tax rates are not applicable, so all income is taxed as ordinary income
- Due to possible surrender charges and IRS tax penalties for early withdrawal, the annuity is not considered a liquid asset
- Ownership by a corporation or any other “non-person” subjects the growth to annual income taxes
- Some surrender charges may last for many years
- Some contracts offer a higher rate of interest if you annuitize and a lower rate if you surrender the contract
- In some states, state premium taxes may reduce the amount of value available for future payments
- Annuities are not federally insured
Consider a Roth Conversion. If you have a large balance in your Traditional IRA and are taking required minimum distributions, each withdrawal from your Traditional IRA will add to your ordinary income. Talk with an advisor to determine if a series of Roth Conversions over several years would make financial sense for you. By converting your Traditional IRA to a Roth IRA, your annual required minimum distributions will be diminished and future withdrawals from your Roth IRA are not currently included in your Modified Adjusted Gross Income calculations for Social Security taxation.
Securities America and its Representatives do not offer tax or legal advice. Please consult an appropriate professional regarding your particular situation.
Securities offered through Securities America Inc., Member FINRA/SIPC and advisory services offered through Securities America Advisors, Inc. Armstrong Advisory Group and the Securities America companies are unaffiliated. Representatives of Securities
America Inc. do not provide legal or tax advice. Please consult with a local attorney or tax advisor who is familiar
with the particular laws of your state. 645362 – April 2013