We have all heard the warnings about the future of Social Security. People worry that the program is going to run out of money and that future generations are putting aside money today for a program that they will never get to benefit from. To an extent these worries are well-founded, although the panic that sets in when younger people talk about social security is probably overdone. There are problems in the system that runs Social Security but there is also time to address these problems and find solutions.
In the meantime, many Americans are now facing the decision of when to start taking social security and how to make the most of the program. Many start taking benefits as soon as they are eligible at age 62, but there are drawbacks to taking the money early. Here are some ways to maximize the benefits of social security.
– Keep Working: There are a few benefits to working longer instead of retiring. First, delaying your social security payments means you’ll receive bigger payments when you do start your income stream. Second, the amount of social security you receive is based on your 35 highest-earning years. Most people earn more money late in their career so replacing a few of the work years from your 20’s with income years in your early 60’s can increase your social security payments. Finally, taking advantage of a few extra years of putting money away in a 401K or retirement plan will make you less dependant on Social Security, which is never a bad thing.
– Repay What You’ve Already Taken: Another way to increase your social security payments once you start receiving them is to repay the amount you’ve received. For instance, if you start taking payouts at age 65, you could add up the amount you’ve received when you turn 70, pay it back without interest, and immediately start receiving a higher payout. Some investors use this strategy by taking early withdrawals, investing those funds on their own, collecting interest, and then repaying the principal years later to increase their monthly income. This plan has risks but the reward can be substantial if you live long enough to make the higher payments worth paying a lump sum from an investment account.
– Strategize With Your Spouse: When you’re married, you have a choice to receive your own benefit or 50% of your spouse’s benefit, whichever is higher, if you wait until full retirement age to collect. A couple can maximize their Social Security payments if the lowest wage-earner starts taking benefits as soon as possible and the highest wage-earner waits as long as possible to start taking benefits. If the husband is the higher-earner and he passes away first, then the wife gets to step up her income to his benefit, which usually means a pay raise for her.
Social Security strategies are complicated but they can make a huge difference in the quality of life you’ll enjoy as you get older. Take the time to talk to a planner that can examine your situation and advise you on ways to maximize your social security payments.
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