Building up savings large enough for retirement is becoming increasingly challenging, which means many retirees will rely heavily on Social Security as a source of income. And while Social Security benefits were never intended to be enough as a retiree’s sole source of income, that doesn’t mean you can’t take full advantage of them.
A well-known way to increase your monthly payments is to delay filing for benefits, but it’s not the only way. There are also some little-known options that could increase your checks more than you think.
1. Move to a more tax-friendly state
Depending on where you live, your Social Security benefits may be subject to state income taxes. The good news is that only 12 states tax Social Security: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.
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If you live in one of these states, moving could save you money on state taxes. Of course, there are many factors to consider before moving, such as the total cost of living in another state. But if you were already thinking about moving when you retire, choosing a tax-friendly state could result in more of your Social Security checks.
2. Invest in a Roth account
Regardless of where you live, your benefits may also be subject to federal income taxes.
Your federal income taxes will be based on a figure called “combined income,” which is your adjusted gross income plus half your annual Social Security benefit amount. If your combined income is more than $25,000 per year (or $32,000 per year for married couples), you will owe federal taxes on up to 85% of your benefits.
However, withdrawals from Roth accounts do not count toward your combined income. If you’re investing in a Roth IRA or Roth 401(k), then you may be able to use those withdrawals strategically to keep your combined income lower by reducing the federal taxes you owe on your benefits.
3. Work a few more years
The Social Security Administration calculates your benefit amount by taking an average of your wages over the 35 highest-earning years of your career, and then adjusts that number for inflation. The result is the amount you will receive if you file at your full retirement age (FRA).
If you haven’t worked a full 35 years when you apply for benefits, you will have zeros included in your average, which will reduce your benefit amount. By working a few more years, you can make sure you’re getting as much as possible.
4. Take advantage of other Social Security benefits
Retirement benefits are not the only type of Social Security benefits you may be entitled to. Depending on your situation, you may also qualify for spousal, divorce, or survivor benefits.
Spousal benefits are sometimes available to those who are married to someone who is entitled to Social Security benefits. To qualify for divorce benefits, you cannot be currently married, your previous marriage must have lasted at least 10 years, and your former spouse must be eligible for Social Security.
In both cases, the most you can receive each month is 50% of the amount your spouse or ex-spouse is entitled to receive in their FRA.
Survivors’ benefits are generally for widows and widowers, but sometimes parents, children, divorced spouses, and other family members who were financially dependent on a deceased person will qualify for them.
Social Security benefits can be an important source of income in retirement, and you may be eligible for more than you think. By taking steps to maximize your monthly checks, you can enter your senior year as prepared as possible.
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