Maximize social security benefits
One benefit to living in the United States is that the government collects money to be paid out to those people who have retired from their careers.The government has promised that those benefits will be available, at least for those in the baby boomer generation.While it may be difficult to live only on social security benefits, maximizing the use of the social security benefit can increase the amount received and decrease the amount of taxes paid by the retiree.Here are a few tips for maximizing social security benefits.
Don't Pass Off Social Security Benefits
Often, people do not look at the social security benefit as the main part of their retirement plan.This benefit may be larger than expected.For example, the social security benefit increases as the cost-of-living expense also increases.Between 1989 and 1998 social security wealth increased by 43% for people ages 51-61.This is a significant increase in wealth over ten years.Also, if people take their benefits too early, it is possible they will receive all of their benefits before they pass away.This could leave them at the mercy of their relatives to care for them.
Don't get greedy
Many people make the mistake of starting their social security benefits too early.While this may have been a reasonable decision during the 1990's when the stock market was booming, currently the economy may make it nearly impossible for people to take their social security benefits early and invest them successfully.Instead, retirees should consider holding off on taking their social security benefits until they turn seventy.There are several reasons for this.
By waiting until age seventy to take social security benefits, a person may potentially double the initial payments they receive from social security.This amount will likely be more than a person who took their benefits early and invested them because of the current state of the economy.
Taking social security benefits too early may cause a spouse to receive less benefits.Currently, the rule is that a spouse will take the higher of either their own working benefits or on half of the benefits their working spouse has earned.If one half of a working spouse's benefits are higher than their working spouses benefits, then that spouse will likely get less if the spouse with higher benefits takes their early.This trickle-down effect will cost the couple twice.
If a person has both an IRA and their social security benefits as part of the retirement plan, they should consider the tax consequences of taking their social security benefits too early.Despite popular thought, if social security benefits are taken at the same time as IRA benefits, the IRA benefits are taxed dollar for dollar and the social security benefits are taxed at eighty-five cents on the dollar.Therefore, it makes sense to postpone taking social security benefits and allowing them to grow while only being taxed for the IRA benefits received.This may save on taxes in the long run.
Planning for retirement can be a complex process and consulting with an expert is highly recommended.When meeting with the expert, it is important to ask about when to start drawing social security benefits, what the tax consequences are to each possible decision, and how government changes of the social security system will affect them.