How to Make the Most of Your Social Security Benefits

Social Security benefits are a large part of many Americans’ plans for income during retirement. Though it is unwise to base your entire plan for retirement income on the money you expect to receive from Social Security, strategizing how Social Security benefits will contribute to your overall financial plan is an essential aspect of retirement planning. Choices you make before retirement age will significantly affect how much you can expect to receive each month in your Social Security check.

Increase Your Pre-retirement Income

The amount you receive in Social Security benefits is tied to how much you earned and paid into Social Security while working, up to the taxable income maximum ($160,200 in 2023). Therefore, increasing your income to at least the taxable maximum can help you increase your Social Security benefits during retirement. Increasing your earnings can also benefit those whose annual income already exceeds the taxable income maximum. Additional income will allow you to save and invest more for retirement, decreasing your reliance on Social Security as a source of retirement income and allowing you to be more strategic regarding when you claim the benefits and how you use them.

Work at Least 35 Years

Those who are able to work at least 35 years before retirement should strongly consider doing so if they want to maximize their Social Security benefits. The benefit each person is eligible to receive is determined by the average of their highest 35 years of income, adjusted for inflation. Therefore, working for more than 35 years will allow you to exclude the lowest years of income. If you significantly increase your income over the course of your career, dropping several of your lowest years can make a drastic difference in your overall benefits. However, if you retire before working 35 years, even if you wait until you are older to claim Social Security, your average income will be brought down because the years you did not work will be included as zeros.

Strategize the Best Time to Claim Your Benefits

You can start claiming Social Security benefits as early as age 62, but the monthly amount you receive will increase each year that you wait until age 70. Some individuals prefer to wait to maximize the amount they receive from Social Security each month. In contrast, others prefer to claim their benefits early and invest the money, hoping their investments will return more than they would have earned by waiting. Both strategies can be viable if you do not have an immediate need for the income that Social Security provides and have other means of supporting yourself early on in retirement. However, the best strategy for you will depend on several factors, including your expected longevity, goals, and risk tolerance.

If you are 65 or older and want to keep contributing to a health savings account (HSA) through your insurance, you may want to delay receiving benefits for a few more years. Once you start claiming Social Security benefits after age 65, you will be required to have Medicare Part A and will no longer have the ability to contribute to your HSA. However, you can still use the HSA funds you have already contributed.

Claim Spousal Benefits and Survivor’s Benefits When Applicable

Married couples have more options than single individuals regarding Social Security optimization because a working spouse’s nonworking or low-earning partner can receive Social Security benefits based on their own income or up to 50% of the higher earner’s benefit, whichever is more. Additionally, married couples can choose to have one person claim benefits earlier in retirement while delaying the other partner’s benefits and allowing them to grow. If the higher-earning spouse in a couple passes away first, the lower earner can inherit their partner’s benefits. Divorced individuals also have the choice to claim Social Security benefits based on an ex-spouse’s income if the couple was married for more than ten years.

Understand Social Security Taxes

If you claim Social Security benefits while continuing to work or receiving income from other sources, you may have to pay income taxes on part of your Social Security benefits. If your adjusted gross income, nontaxable interest, and half of your Social Security benefits exceed the combined income threshold, up to 85% of your benefits may be taxable. Careful tax and income planning in retirement can help you avoid or lower these taxes. Some strategies you may consider are delaying taking your Social Security benefits and converting traditional retirement accounts to Roth accounts.

Work with a Financial Advisor Experienced with Retirement Income Planning

Even after reading this article, you may have unanswered questions or anxieties about how Social Security will affect your retirement plans and whether you will have enough to maintain your lifestyle in retirement. If your financial situation is particularly complex or you don’t feel confident in your retirement plan and the income you expect to receive, you may benefit from working with a financial advisor experienced in retirement income planning. These advisors can help you make informed financial decisions as you approach retirement. They can fine-tune your approach to retirement savings, explain your various retirement income streams and how inflation and taxes will affect your savings, and help you create a retirement spending plan.

The financial advisors at Business & Financial Strategies would love to meet you to learn more about your current financial situation and goals so they can provide personalized guidance to help you increase your retirement nest egg, make a plan for the income you expect to receive in retirement, and budget for sustainable retirement spending. Its financial advisors tailor their advice and strategies to your unique situation to help you thrive before and during retirement. Business & Financial Strategies has offices in the Iowa City/Coralville area and Fairfield, Iowa, and it serves clients throughout the United States. To learn more, call 319-358-7700, or visit www.BFSFinanicalPlanning.com to schedule a complimentary 20- to 30-minute in-person or virtual initial conversation.

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