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Layin’ It on the Line: Social Security benefits and how to make them work harder for you

By Staff | Jan 3, 2024

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Lyle Boss

Disclaimer: Please consult an authorized or licensed professional before making any final decision. Social Security can be a helpful part of your retirement planning but make sure you fully understand the rules as well as the benefits.

Social Security continues to be a vital component of financial stability for countless Americans, especially in their retirement years. Grasping its mechanics and optimizing its advantages is critical to a secure and enjoyable retirement. This article aims to clarify Social Security and provide guidance on how to utilize your benefits effectively.

1. Understanding Social Security basics

Social Security, a program run by the federal government, offers financial support to retirees, individuals with disabilities, and families of workers who are retired, disabled or have passed away. Your history of earnings mainly determines the benefits you receive. This involves using a specific formula on your Average Indexed Monthly Earnings (AIME) to determine your Primary Insurance Amount (PIA).

2. Knowing when to start benefits

One of the most crucial decisions you’ll make regarding Social Security is when to start your benefits. Beginning to receive benefits at age 62 is an option. However, this choice will lead to lower monthly payments. For those born after 1943, the full retirement age (FRA) is between 66 and 67 years, depending on your birth year. Delaying benefits beyond your FRA can increase your monthly payments by a certain percentage until age 70, at which point the increase stops.

3. Benefits for spouses and survivors

If you’re married, your spouse may be eligible for spousal benefits, which can be up to 50% of your benefit at your FRA. Widows and widowers can also receive survivor benefits, often 100% of the deceased spouse’s benefit, depending on the survivor’s age when they start receiving the benefits.

4. Working while receiving benefits

Suppose you continue employment while drawing Social Security retirement benefits before reaching your FRA. In that case, it’s important to note that earning more than certain yearly limits may temporarily reduce your benefits. However, this reduction isn’t permanent. Once you reach your FRA, your monthly benefit will be adjusted upward to compensate for the earlier withholdings due to your earnings.

5. Taxation of benefits

It’s important to know that your Social Security benefits could be taxed at federal and state levels based on your total income. This total income combines your adjusted gross income, any interest income that’s not taxable and 50% of your Social Security benefits. Comprehending the relationship between Social Security and other income types is vital for effective tax planning.

6. Strategies to maximize benefits

There are various strategies to maximize your Social Security benefits. For example, if you’re married, you might consider coordinated strategies for when each spouse begins taking benefits. Those who are single might benefit from delaying their benefits to increase their monthly payments. Consult with a financial advisor to understand the best approach for your situation.

7. The importance of planning

Planning for Social Security should be an integral part of your overall retirement strategy. Consider your health, life expectancy, work plans and how your benefits will interact with other retirement income sources.

Social Security is a complex but vital part of retirement planning. By understanding the basics, knowing when to claim benefits, and considering taxation and other income sources, you can make informed decisions to maximize your Social Security benefits. Remember, the best strategy depends on your circumstances, so consider consulting with a financial professional to tailor a plan that best suits your needs.

Avoid relying on luck for your retirement planning. Invest time learning about your Social Security options and finding ways to enhance their value. It’s advisable to seek guidance from a financial expert who can design a strategy that aligns with your specific situation and objectives. Knowledge is power, especially regarding Social Security. The better informed you are, the more effectively you can leverage it to your advantage. Act now to ensure a more stable and secure future.

Lyle Boss, a native Utahn, is a member of Syndicated Columnists, a national organization committed to a fully transparent approach to money management. Boss Financial, 955 Chambers St., Suite 250, Ogden, UT 84403. Telephone: 801-475-9400.

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