Thursday, August 4, 2016

6 Ways to Maximize Your Social Security


     Social Security took a cut out of every paycheck we ever earned and used the money to pay benefits to our grandparents, parents and older siblings. Now, finally, it's our turn. It's only natural that we want to get our benefits, too.

     The rules for collecting Social Security are complicated and often changing. For example, Congress recently closed two "loopholes" in filing for Social Security. One was called "file and suspend" and the other "restricted application" – both allowing two-income married couples to boost their benefits as one spouse collected while the other's continued to grow, at a rate of about 8 percent a year.

     Meanwhile, we hear dire predictions that Social Security is running out of funds. Eligibility rules may change or benefits may be cut. Social Security is supposed to be indexed to inflation, but in the past few years increases have been minimal because government measures of inflation have been so low. The projection for 2017 is no cost-of-living increase at all for Social Security.

     Nobody knows what the long-term future holds for Social Security. But under current conditions, there are six proven and non-technical strategies to make the most out of the program. They may not all be easy to do, but they are simple and tried-and-true. 

     1. Work a long time. Social Security figures your benefit by calculating your average indexed monthly earnings for the 35 years in which you earned the most money. So, obviously, one way to maximize benefits is to put in a full career, working at least 35 years. Maybe that seems like a long time, but look at it this way: If you retire at full retirement age (66 for most baby boomers), you clocked 35 years even if you didn't start your career until you were 31. You would also hit 35 years if you began working at age 21 and took off 10 years to raise children. 

     2. Have a good job. Social Security sets a maximum amount of salary that is subject to the payroll tax. It's currently $118,500 per year, which is the same amount of earnings it will credit toward your benefit. This amount is adjusted for inflation. The maximum amount in 2000 was $76,200, and in 1990 it was $51,300. It's easier said than done, but the way to maximize your benefit is to earn the maximum amount set by Social Security throughout your career. If you were earning at least $51,300 in 1990, $76,200 in 2000 and $118,500 today, you're eligible for the maximum possible benefit. 

     3. Don't retire early. Workers are eligible to start taking Social Security benefits at age 62, but the amount you receive is discounted by about 25 percent if you sign up at this age. Also, if you start Social Security before full retirement age and you earn more than $15,720 per year, the government starts temporarily withholding your benefits. Conversely, if you work beyond full retirement age, you receive a bonus of approximately 8 percent a year, up to age 70. There's no extra benefit to working past age 70. 

     4. Don't earn too much in retirement. If you're married and file a joint tax return, your Social Security benefit is not taxed if your combined income falls below $32,000. Half is taxed if your income is between $32,000 and $44,000, and 85 percent of your benefit is taxed if your income exceeds $44,000. If you had a good career and didn't retire early, you'll likely be subject to the 85 percent rule.

     5. Live in a tax friendly state. There's not much you can do to avoid federal taxes unless you have a low income. But you can do something about state taxes. Most states do not levy income tax on Social Security benefits, including retirement havens like Florida, Arizona and the Carolinas. But about a dozen states do exact income tax on your Social Security benefits, including red states like Kansas and Utah as well as blue states like Connecticut and Vermont. (Of course, B and I just moved to Connecticut, but not for long. We can't afford it!) 

     6. Stay in good health. By far the most important factor in how much you collect from Social Security is not how much you earned, and not when you decided to start benefits -- but how long you stick around to collect those benefits. In other words, the best way to maximize your Social Security is to eat right, get some exercise, make sure to have an annual physical and in every other way take care of yourself so you continue to collect a monthly benefit throughout a long and prosperous retirement.

17 comments:

Kailani said...

Good tips! I don't think emotionally I can make it to 70 (working), but I'm figuring at least 66. Maybe 67. We'll see. Thanks!

Luke Osborne said...

Excellent summary, Tom. Everyone's situation is unique, but these are solid recommendations.

Stephen Hayes said...

Great tips. I should consider moving to a more tax friendly state.

Carole said...

Delaying gratification. So important and yet hard to do. We're waiting until we are 70; can't beat the 8% bonus per year. But I know that not everyone can afford to do that. We're not hearing much from the candidates about social security. Hmmmm.....

Susie Q said...

We are also like Carole - waiting until 70 to start SS. We retired early, but actually have a "weird" situation, in that we are now bringing in more annually than when my husband worked (from his pension & also "deferred compensation" - we lived on only 1/2 of his annual salary, and the company put the rest away to be deferred in retirement - paid out monthly for 15 yrs). Thankfully we aren't dependent upon SS to fund our retirement dreams - we've taken care of that ourselves. Too many are depending on ONLY SS to support them in their retirement years.

Janette said...

Clearing throat....
Delaware.
Delaware does not tax Social Security. It has a low property tax AND has no sales tax.
Our hurricanes are not as often as the Carolinas. Our summers are not as hot as Arizona. (Arizona does tax federal government and military retirement).
Of course, global warming could sink the state and we are in the direct blast line from DC!

Enjoyed your post.

Terri @ Coloring Outside the Lines said...

Thanks for the tips..we are in the "thinking" stages or pre-retirement zone, whatever you call it. Wondering about this or that and trying to make a wise decision. I'm really upset about the government dipping their greedy fingers into SS...and also the rumors that it will be bankrupt before too long. More so worried about my children and grandchildren's futures. We need some intelligent people in Washington..not these career cash bloated politicians that think they live in some kind of magical kingdom where their stupid decisions don't affect anyone.

schmidleysscribblins.com said...

Great summry. We did most of those things. David retired at age 73, I retired t age 64 because I had a stroke. Fate often plays a hand in when you retire.

Anonymous said...

#7 - Don't stay home to raise your kids.

Mindy Mitchell said...

Great tips! I am 64 and taking a respite from work to tend to my aging parents (both in their 90's and married 73 years AND they planned well financially!). I am not taking my SS yet and living off house sale proceeds. Being in financial limbo causes me worry but it's pretty much a crap shoot when you factor in how things are going these days ;-) I do want to get back into the workforce as I miss the mental stimulation and $$, to be sure.

Kathy @ SMART Living 365.com said...

Hi Tom! Thanks for these tips. Thom and I are looking to take SS at 66.5 but that's a few years off and we'll just have to see for sure. We like our work and can continue doing it at any age so there is no particular rush. As you said, the very biggest thing you can do is to stay healthy and live a long and happy life. ~Kathy

olynjyn said...

When I ran retirement seminars 30 years ago, the folks who were retiring at that time, if they had paid the maximum into Social Security in those days (and 99% of them didn't), they would have gotten every cent returned to them in 19 months...So, in less than 2 years any contributions they made into Social Security were returned to them and the rest was the contributions of us baby boomers. Now, as baby boomers we will hopefully live the 20 years it will take us to get every cent we contributed and not have to take reductions on top of that...unfortunately, some of us won't get every cent we had deducted from our checks.

Anonymous said...

Your blog doesn't figure in what type of work you do or your health what good is a fat social security check if you die young..My mother in law hit the jackpot, her first husband of over 15 years owned many businesses when he died a lot younger than the man she was married to for 45 plus years and fathered 8 kids and never supported her or the kids and drank like a fish did, she got his benefit which was the maximum she got it for about 22 years and enjoyed it..Only thing of it her good for nothing kids tried to get that money monthly, so we put a stop to that crap and she lived well her son that worked like a horse does tilling the fields got the benefit of a nice place to live in, good food and a mom who finally got something from her marriage to a man she actually hated..She lived til nearly 87 took her ss at 65 promptly and found out the man she was married to had little in the way of social security benefits, not too long after that her first hubs died and she got the maximum benefits and he did leave her some money to boot, so she lucked out..My hubs worked like hell and saw people retire with a pension and social security only to die within a few weeks or a month or so, the job took their life and their union pension and their social security,so I say get something at the very least!!!!!!!!!!!!!!!!!!!!!!!!

Anonymous said...

There are some women who live into their late 90's I know some, my aunt is one almost 100, she put her money away, no kids, no husbands and no drama, I also knew a lady who was like a mom to me and she lived until 95 she never contributed that much even though she was highly educated a writer, newpaper writer and books too..she lived for nearly 30 years longer than her husband and got a paltry amount but enough for just her no kids and drama, it all depends upon how long you live women live at least 16 to 20 years longer and they don't have to shell out to kids who bug them for an inheritance, if they have good health they can do as they please I live around women in their near 90's and they are happy, healthy and some married most by themselves, they answer to no one~~~~~~~~~~~~~~~!!!!!!!!!!!!!!!!

Peter J. Andros said...

Strictly stuff for the sensible, bourgeois middle class who think a "job," babies, and home ownership are goals to attain. Most artists, creative types, would/should disregard this informational overload.

All knowledge is gained from experience. Not from the blather of a blogger, regardless how well presented and focused.

Bruce Benson said...

Effectively retired in my 50s, due to health concerns. By the time I left my 50s I'd learned two key things I didn't get before: 1) Fitness is about working out everyday and having the time to do it, and 2) Health is about what I eat. I also watched my father-in-law pass away in his early 90s after a few years stay in a nursing home. The only thing "wrong" with my fathter-in-law, I concluded, was that he was out of shape and overweight. His mind was fine. So with all this I concluded that my job was now to become and then stay healthy and fit. So I would edit your list to say #2 is to live a frugal life and invest routinely (e.g., index funds) relative to one's income; #1, #3-5 are really just part of #2 as edited and #6 is critical to make use of what one has accumulate in #2. In summary: live frugally and invest, stay fit and healthy, and then "retire" when you want to.

Jason Hayes said...

These are some really great tips about Social Security, and I never considered the importance of state tax. Moving to another state might have seemed a bit too much, but I will retire soon and taxes in my state are very high. States that don't have tax are great, and thank you for mentioning the states that tax it as income.