Planning for retirement is hard enough, but did you know there are factors hiding in plain sight that could change your income in retirement?
It’s unfortunately true.
According to a recent article in FORBES “The average working couple will receive over $1 MILLION in social security benefits over their lifetime – And the right claiming strategy could increase your benefits by as much as $200,000!”
Most Americans only consider when they will claim social security.
But they ignore other critical factors that could have a far greater impact.
In this post we’ll reveal 5 critical factors that could dramatically increase your social security income, including
- How you could avoid the most common mistake of when to claim social security.
- An expiring loophole that could help you get 32% more in social security income.
- Plus, how you could reduce, or eliminate paying taxes on up to 85% of your benefits
Factor #1: Your timing of when you claim your benefits
We’ve used this research study a lot lately, but it’s powerful none-the-less, and would be a great way to open this segment …
According to new research featured in Bloomberg and Forbes … 96% of HARD–WORKING Americans lose an average of $111,000 in social security benefits. And it’s all due to critical timing mistakes.
When you claim social security, there’s a lot more at stake than just your benefits. This decision could not only impact how much you receive, but it could also trigger an avalanche of taxes; double your Medicare premiums; and cause you to wipe out your spousal benefits. So, the income you thought you could depend on for retirement, is now much less. Ultimately, it could cost you tens of thousands, if not hundreds of thousands of dollars.
9 in 10 Americans don’t know how to maximize their Social Security benefits, according to a new article from The Motley Fool (Click Here). A survey conducted by Nationwide found a full 92% of Americans couldn’t identify the factors that would give them the maximum benefit — even though 53% claimed they knew exactly what to do in order to get the most income.
Claiming your benefits is more complicated and confusing than ever before. “There are 2,728 rules in their handbook. And there’s literally hundreds of thousands of rules about those 2,728 rules in what’s called their program operating manual system.”
Conventional wisdom for when you should claim your Social Security benefits says you should wait until age 70. And that makes sense, the longer you wait to claim your benefits, the more money you get, right? But unfortunately, that could be flat out wrong. And that’s because conventional wisdom has been turned upside down. Why you may think waiting to claim your benefits could add thousands to your bottom line it could actually cost you money. Because you haven’t looked at how it impacts the rest of your retirement game plan. It all depends on your unique situation.
Your strategy for claiming your Social Security benefits will be different than your spouse, or you brother, or neighbor, and so on. Everyone is different. And everyone needs a strategy designed specifically for their situation.
There is no one size fits all strategy. This kind of thinking can get you into big financial trouble.
The truth is, most Americans take their social security benefits at face value. And they wind up leaving tens of thousands, if not hundreds of thousands of dollars on the table. It’s critical you understand all of your options before making your decision. There are benefits you may not know exist. So you need to arm yourself with the facts.
Factor #2: Social security taxes
Because of the way Social Security benefits are taxed, many middle-income retirees face a ‘tax torpedo,’ where their marginal tax rate can more than double.
It could hit you like a ton of bricks … when you retire, you could pay taxes on as much as 85% of your Social Security benefits. Let me repeat that you could pay taxes on as much as 85% of your Social Security benefits.
Most people don’t realize this, and when the tax bill hits it’s too late to do anything about it. So now the money you were counting on to help support you in retirement, could be a fraction of what you thought it was going to be. And there’s nothing you could do about it.
Your benefits could also throw you into a higher tax bracket, increasing your taxable income. This could be an unexpected expense you want to avoid at all cost.
According to US News, there are a few ways you can minimize Social Security Taxes: Stay below the taxable thresholds, manage your other retirement income sources, consider taking IRA withdrawals before signing up for Social Security, save in a Roth IRA, factor in state taxes, and set up Social Security tax withholding.
Using a Roth Conversion is one of the easiest ways to manage your Social Security taxes. A Roth requires after-tax money, and then allows for tax-free growth. So when you withdraw this money in retirement, you will not get taxed. Withdrawing money from a traditional IRA or 401K will raise your taxable income, and therefor raise taxes on your Social Security benefits. A word of caution: you probably won’t want to convert all your money to a Roth at one time – that could result in a massive tax bill. Most people who use this strategy convert just a portion of their savings each year.
Factor #3: How your social security income impacts your Medicare premiums.
Most people have no idea that their social security benefits could send their Medicare premiums through the roof! Especially if you’re what the Social Security considers a “high-income beneficiary.”
According to AARP, “Medicare premiums are based on your modified adjusted gross income, or MAGI. That’s your total adjusted gross income plus tax-exempt interest, as gleaned from the most recent tax data Social Security has from the IRS. To set your Medicare cost for 2019, Social Security likely relied on the tax return you filed in 2018 that details your 2017 earnings. If your MAGI for 2017 was below the “higher-income” threshold — $85,000 for an individual taxpayer, $170,000 for a married couple filing jointly — you pay the “standard” Medicare Part B rate for 2019, which is $135.50 a month. At higher incomes, premiums rise, to a maximum of $460.50 a month if your MAGI exceeds $500,000 for an individual, $750,000 for a couple.”
The rules and guidelines for Medicare change every year, so it’s critical you stay up to date.
Factor #4: Your spousal benefits
The details of spousal benefits are NOT well-understood by many Americans.
You aren’t the only person to think about when you make your claiming decision. This is more than just about you. This impacts your spouse too. If you make a mistake, your decision could wipe out your spouse’s spousal benefits. And there’s no getting this money back. Once it’s gone it’s gone.
Your spousal benefits could add tens of thousands of dollars to your benefit. But it’s riddled with trap doors, so you have to know the rules.
What is a spousal benefit? When a spouse dies, their current or former marital partner could get their benefits. It depends on the specific situation though. Who is eligible? Current spouses, widowed spouses, and ex-spouses.
Here are some exact rules to keep in mind from The Balance:
“Current spouses and ex-spouses (if you were married for over 10 years and did not remarry prior to age 60) are both eligible for a spousal benefit”.
“You must be age 62 to file for or receive a spousal benefit. You are not eligible to receive a spousal benefit until your spouse files for their own benefit first.
Different rules apply for ex-spouses. You can receive a spousal benefit based on an ex-spouse’s record even if your ex has not yet filed for his or her own benefits, but your ex must be age 62 or older.”
“As a spouse, you can claim a Social Security benefit based on your own earnings record, or you can collect a spousal benefit that is half the amount of your spouse’s benefit at their full retirement age. “
Many retired couples get this wrong. And it winds up costing them thousands of dollars in benefits. But you can easily avoid this. And you owe it to your spouse to get this right.
Many retired couples get this wrong. And it winds up costing them thousands of dollars in benefits. But you can easily avoid this. And you owe it to your spouse to get this right.
It all starts with a customized strategy. There’s no one-size fits all solution here. Every couple has a unique situation and will have a unique strategy to get back every last penny that’s rightfully theirs.
According to The Motley Fool, here are 5 Things to Know About Social Security Spousal Benefits: You can receive up to half of your spouse’s benefit, you can claim spousal benefits even if you worked yourself, you can’t claim spousal benefits until your spouse starts collecting Social Security, you can’t grow a spousal benefit, and you can claim spousal benefits even if you’re no longer married.
Factor #5: Yearly changes/Restricted Application is Expiring
Every day, 10,000 or so baby boomers are turning 65. For many of you, Social Security will be a major part of your retirement income. With that in mind, it is important to know how Social Security will be changing for 2020.
There are more changes for social security starting in the New Year. And although some of these changes may seem insignificant on the surface, they could have a huge impact on your benefits.
Planning for retirement can be tricky. There seems to be new traps to look out for every step of the way.
If you’re feeling overwhelmed or a little afraid, we are more than happy to assist you. Please feel free to reach out to us here at Secured Retirement Financial at any time.
