4 Social Security Strategies to Bankroll Your Retirement

For roughly 66 million Americans, Social Security plays a vital role in helping them cover their daily and monthly expenses once they've retired or are nearing the end of their careers and will soon retire. But the monthly checks aren't always huge amounts, and there are ways for retirees to increase their benefits by taking certain measures. Here are four Social Security strategies to bankroll your retirement.

1. Work at least 35 years

The full benefits that a retiree is entitled to are called the primary insurance amount (PIA). Retirees can claim their PIA at their full retirement age (FRA), which is 67 for those born in 1960 or later. The Social Security Administration (SSA) calculates a retiree's PIA by looking at the number of years they have worked and therefore paid Social Security taxes. The SSA looks at a person's earnings over a period of 35 years to help calculate the PIA. If a person doesn't have 35 years of earnings, then a zero goes in for that year, which drastically reduces benefits. So you'll want to make sure you've worked for at least 35 years.

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2. Increase your earnings 

Obviously, this is easier said than done. But the SSA calculates your PIA in part by looking at your top 35 years of earnings, so the more you make, the larger your benefits will be once you reach retirement. That's why you'll want to stay motivated throughout your career and try to increase your earnings, because the Social Security taxes you pay on those earnings will ultimately come back to you and help bankroll your retirement.

Keep in mind that the SSA can only tax your annual earnings up to a certain threshold, which is a number called the benefit base. The benefit base, however, is typically equivalent to a high salary. In 2022, the benefit base was $147,000, and this year it went up to $160,200.

3. Delay benefits

People have the option to claim benefits as early as age 62 and as late as age 70. But there is a penalty for claiming benefits early, and it can be quite hefty. If you were born in 1960 or later and you claim benefits at age 62, then you're looking at a 30% reduction in your benefits.

However, by delaying until the age of 70, your benefits will increase. For every month you delay, your Social Security benefits will grow by 2/3 of 1%, which equates to 8% growth per year. So, if your FRA is 67 and you delay until 70, you can grow your Social Security benefits by 24%.

4. Understand Social Security tax laws

There are a lot of different tax laws when it comes to Social Security. It's important to speak to an accountant or learn on your own about as many as possible, so you can save yourself as much as possible by lowering your Social Security taxes.

For instance, if your combined income, which includes half of your Social Security benefits and other forms of income, exceeds a certain threshold, you may end up paying taxes on 50% or even 85% of your benefits. There are 12 states that also tax Social Security benefits. 

There are several ways to lower the taxes you pay on Social Security benefits, such as the way you position your individual retirement accounts (IRAs) or Roth IRAs, or in some cases by donating required minimum distributions from an employer retirement account. It's good to have an idea of how all these things can affect the taxes you may have to pay on your benefits.


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