Social Security can be a great help when you reach retirement, especially if you don’t have the necessary savings at that time, according to a 2024 report from the Transamerica Center for Retirement Studies, the estimated average retirement savings for baby boomers is about $194,000, and a whopping 43% of baby boomers expect Social Security to be their primary source of income in retirement.
If you are going to rely heavily on your Social Security benefits, it is advisable to make the most of them. The timely approach can significantly increase your payments, sometimes by large amounts of dollars, monthly, with these three little-known strategies, you could earn more than you think.
You Can Reverse Your Decision if You Change Your Mind
Generally, the amount you receive for your benefit is set for life once you start claiming, except for cost-of-living adjustments. But if you apply early and change your mind, there is a chance to reapply.
Within 12 months of submitting your application, you can withdraw your application, you will have to return any benefits you have already received, but then you will be able to apply again at a later date.
If you were no longer able to receive benefits during the 12 months or cannot pay them, you also have the option of suspending Social Security, once you reach full retirement age, you can pause cashing checks until age 70, When you start receiving benefits again, you will receive larger payments each month.
According to 2023 data from the Social Security Administration (SSA), the average retiree earns about $740 monthly at age 70, but at age 62, if you submit your application early, you will get those lower payments, but if you want a second opportunity to get larger checks, withdrawing or suspending Social Security can substantially increase your benefit amount.
The Length of Your Career Affects Your Benefit Amount — Never Forget That Detail
A large portion of people are aware that their income and the age at which they begin to apply for benefits will affect the amount they will receive month to month. But another lesser-known factor is how many years you worked.
Generally, you can qualify for retirement benefits after working and paying Social Security taxes for at least 10 years, but your benefit amount is calculated by averaging your wages over 35 years of work. Those who earned the most.
If you have worked less than 35 years, zeros will be included in your average, which will reduce your benefit amount, to get the most out of your benefit, you can also work for more than 35 years, probably earning a salary higher now than at the beginning of your career, since only the years in which you earned the most are included in your calculations, the more years you work with a higher salary, the more important your average income will be, which will be translated into a higher monthly payment.
Roth Contributions Can Reduce Your Taxes
Even in retirement, you may still owe income taxes—Social Security income is no exception—and you may owe state and federal taxes on your benefits.
Unfortunately for many, most states no longer tax Social Security, so you may no longer have to pay that type of tax, however, federal taxes are more complicated.
Your federal taxes will depend on a figure called provisional income, this is half your annual benefit amount plus your adjusted gross income and any non-taxable interest, for example, if you are earning $20,000 per year in benefits and at the same time you withdraw $40,000 per year from your 401(k), your provisional income would be $50,000 annually.