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While you don't have much control over how much you pay into the Social Security system, you may be surprised just how much you can influence what you get out of it. Here are six ways to maximize your payout.
1. Don't jump too soon.
Do you know your full retirement age under Social Security? It's between 65 and 67 years old, depending on when you were born. You can start receiving benefits as early as age 62, but you'll pay a stiff price for an early start. For example, if your full retirement age is 66, you'll slash your payout by 25% if you claim at age 62.
There's another reason why you may want to wait. If you're still working and haven't reached your full retirement age, your benefits are reduced by $1 for every $2 you earn above $14,160.
2. Wait even longer.
There's a nice flip side to that pre-retirement age benefit cut — a bigger payout if you wait beyond that age to start your payout. Depending on when you were born, your monthly benefit will grow between 5% and 8% for each year that you delay up to age 70. Waiting may also benefit your spouse, since spousal survivor benefits include your delayed retirement credits.
3. Watch out for taxes.
Once you've started receiving benefits, you'll owe taxes on a portion of them if your total income — which includes investment earnings, pension payouts, wages, tax-exempt interest and half of your Social Security income itself — is higher than these government thresholds.
|Filing Status||Up to 50% of Benefit is Taxable if Income Exceeds:||Up to 85% of Benefit is Taxable if Income Exceeds:|
|Married Filing Jointly||$32,000||$44,000|
How can you reduce your total income and minimize the tax bite? One way is by emphasizing investments that don't hit your tax return. Guaranteed savings annuities, for example, allow you to earn interest that isn't taxed until you actually withdraw it.
4. Clear your debts.
Your Social Security benefits are protected from most debt collections, but they can be garnished to collect unpaid federal taxes, federal student loan balances and even child support or alimony.
5. Get extra credit for military service.
If you served on active duty between 1957 and 2001, you're entitled to special extra earnings that could increase your Social Security payout. If your service was between 1957 and 1967, you'll need to make sure the credits are added to your record at the time you apply for benefits. (Credits for service between 1968 and 2001 were automatically added to your record.)
6. Do the spousal shuffle.
This technique takes advantage of the fact that married people are entitled to a benefit based on their spouse's earnings. Here's how it might work for a couple named Chuck and Sandy:
- Chuck retires and begins receiving Social Security benefits, but Sandy wants to keep on working past her full retirement age.
- When she reaches her full retirement age, Sandy claims a spousal benefit and starts receiving income based on Chuck's benefit.
- After reaching age 70, Sandy stops working, and files for her own benefits, which are now much larger thanks to her older age. (The lower spousal benefit stops).
As you weigh your options, it's important to understand the rules governing Social Security payouts could change in the future. Before making a decision, consider your own financial circumstances and consult with your tax, legal or financial planning professional.
Examples given are hypothetical illustrations and not an indication of the benefits or features of any USAA product. Sample costs and loans are for illustration purposes only and are not a rate quote, pre-approval, or commitment to lend.
USAA or its affiliates do not provide tax advice. Taxpayers should seek advice based upon their own particular circumstances from an independent tax advisor.
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