3 Social Security Strategies to Bankroll a Sweet Retirement | Smart Change: Personal Finance

(Christy Bieber)

Do you dream of a retirement where you’re flush with cash and never have to worry about making your dollars stretch?

If you want to enjoy your later years with plenty of income to indulge your dreams, there are a few Social Security strategies you can implement in order to make that happen. Here are three of them.

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1. Do not count on Social Security alone

The first Social Security strategy to implement if you want a sweet retirement is to not count on your benefits to be your only support source.

You’ll definitely get Social Security income, despite common fears of the trust fund running out and benefits coming to an end. But the money you receive from the Social Security Administration is absolutely not going to be enough to give you financial security.

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The harsh reality is that Social Security is intended to replace 40% of pre-retirement income and you just can not have a comfortable retirement with so little money coming in. You’re going to need to treat Social Security as one of several sources of funds in your senior years and make a detailed plan to bring in enough extra money to enable you to enjoy your life as a retiree.

2. Increase your monthly benefit as much as you can

While you need to develop and stick to retirement savings goals, you should also try to maximize the income Social Security can provide you if you want the most money possible as a senior. And there are a few ways to do that.

First and foremost, you’ll want to work on earning as much as possible for as long as you can since, as mentioned above, Social Security benefits are based on average wages. The higher your average wage, the bigger your benefit checks will be. You’ll also want to make sure to work 35 years or longer, since the average wage used in the benefits formula is calculated based on a 35-year work history. If you have fewer years on the job, your average will be lower. If you have exactly 35 years, your average will also be lower than it would have been if you worked some extra years at a higher salary in order to ensure that your lowest-earning years do not count in your formula.

Beyond increasing your average wages, you’ll also want to make a plan to put off claiming benefits as long as you can. Although you can start Social Security checks at age 62, doing so would mean that you are hit with early-filing penalties. These reduce your benefits for each month you claim them ahead of a designated full retirement age. If you want the most income possible, you’ll also need to wait beyond FRA until 70 since benefits increase by two-thirds of 1% for each month you delay beyond full retirement age.

By waiting to start benefits and maxing out your monthly income, you can get a much larger Social Security check than you’d get if you worked fewer years, made less, or claimed benefits at a younger age.

3. Make smart choices so you do not lose your benefits to taxes

Finally, if you want Social Security to play an important role in helping to fund your retirement, you’ll want to minimize the taxes you pay on it. You can do this by investing in a Roth IRA and also by living in one of the 38 states that does not tax your Social Security checks.

The IRS takes a cut of benefits once provisional income hits a specific threshold of $ 25,000 for single filers and $ 32,000 for married joint filers. But distributions from a Roth IRA or Roth 401 (k) do not count in provisional income. You probably won’t have to worry about owing federal taxes if your retirement income comes from a Roth instead of a traditional account. And just 12 states tax benefits on the local level, so if you opt not to live in one, state taxes won’t be a concern either.

By following these three tips, you can have a great retirement with plenty of cash both from your Social Security checks and from the savings account you’ve built throughout your working life.

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