In retirement, Social Security benefits can be a significant source of income, so it’s important to maximise them.
The amount of benefits you receive is based on your lifetime earnings and the age you file for Social Security. Other factors may limit the size of your checks, and if you’re not prepared, you may receive less than you expect.
1. State Taxes
Even in retirement, you may be taxed. In some places, Social Security benefits are taxable as income.
But 38 states don’t tax it. In addition to those 12, 12 states don’t. North Dakota used to tax benefits. But starting in 2021, Social Security is tax-free in California.
There’s not much you can do if your state taxes benefit. Preparing for this expense now will save you money in retirement.
You may also owe federal taxes on your benefits. Your “combined income” determines whether or not your benefits are taxable.
Your combined income is your adjusted gross income plus half of your annual Social Security payout. The federal government taxes a portion of your benefits if your combined income is over $25,000 (or $32,000 for married couples filing jointly).
The good news is that you won’t pay taxes on more than 85% of your benefits. In addition, Roth IRA withdrawals do not count toward your total income. To reduce your tax payment, more of your retirement income comes from Roth IRAs.
3. Debts Unpaid
If you owe a lot of money, your benefits may be garnished.
If you owe federal taxes, the Treasury Department can withhold up to 15% of your benefits until you pay them. Restitution or child support arrears may also be garnished.
While many people opt to retire and collect Social Security at the same time, you can work afterwards. If you keep working, your benefits may be lowered based on your age and salary.
If you don’t meet FRA this year, your benefits will be decreased by $1 for every $2 earned over $19,560. If you earn $25,000 each year, you’re $5,440 over the cap. A $2,720 annual cut, or nearly $227 every month.
Your earnings are subject to a separate cap if you reach FRA this year. Your checks will be cut by $1 for every $3 earned over $51,960.
Fortunately, the cuts are temporary. Once you achieve your FRA, the SSA will recalculate your benefits and stop reducing them based on your income.
Increasing Your Gains
You may not be able to control the reduction of your advantages. But you may still prepare. You can prepare for retirement by knowing how these four things may affect your Social Security.
Most retirees ignore the $18,984 Social Security bonus
Like most Americans, you’re behind on your retirement savings. But a few “Social Security secrets” may help you increase your retirement income. For example, one simple method might add up to $18,984 each year!
After learning how to optimise your Social Security benefits, we believe you may retire with the confidence we all seek.