3 Ways to Score a Higher Social Security Paycheck | personal-finance


(christy bieber)

Did you know that you can actually increase the amount of Social Security income you get as a senior? Your benefit amount isn’t set in stone, and decisions you make could have a huge effect on your retirement benefits.

So, how can you ensure you get the highest Social Security paycheck possible? Here are three steps to consider taking to supersize your payments and reduce your financial worries in your later years.

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1. Invest in Roth accounts for retirement

The type of retirement account you use may not seem to have anything to do with Social Security benefits at first glance. But the reality is, if you choose a Roth 401(k) or IRA over a traditional account, you may get to keep more of your retirement income.

See, Social Security benefits become taxable once your provisional income hits a certain threshold. That threshold isn’t indexed to inflation, and it’s relatively low at $25,000 for single tax filers and $32,000 for married joint filers. A growing number of retirees hit it every year. So, if you’re retiring in the future, there’s a good chance you’ll be above it and thus lose some of your benefits to the IRS.

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The catch, though, is that provisional income is calculated differently from regular income. It equals half your Social Security benefits, some non-taxable income, and all taxable income. It does not include distributions from Roth accounts, since these distributions aren’t taxable.

This means that if you put your retirement money into a Roth, you shouldn’t have to worry about owing taxes on retirement benefits even if you withdraw a substantial sum. You’ll get a bigger Social Security check since the IRS won’t take a cut of it.

2. Be strategic about the state where you retire

The IRS may not be the only ones that are after your Social Security paycheck. If you live in one of 12 states where benefits are taxed, you may also see your retirement income shrink due to your local government claiming part of it.

The 12 states where this could be an issue include Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.

If your goal is to get the biggest paycheck possible from Social Security and you don’t want to worry that your steering take-home pay will decline due to state tax, consider clearing these locales when picking where to retire.

3. Put off claiming benefits for as long as possible

Social Security can be claimed starting at 62. However, it’s common — and often advisable — to wait longer to get benefits. In fact, you could claim your first check as late as age 70. The big reward for a delayed claim is a larger monthly payment.

There’s a system of early filing penalties and delayed retirement credits that apply to your benefits. The goal of this system is to equalize out benefits for those who claimed early and those who started late. Early filers get more checks, but each is smaller. The reverse is true for late filers who get fewer checks but bigger payments.

If you want the largest monthly income, you’ll have to wait until 70 to avoid all the early filing penalties you could be hit with and to max out the credits due as a result of waiting. Of course, this means you risk getting less lifetime income if you pass away before receiving enough big checks to make up for benefits you missed out on. But it may be worth taking this risk if you need the largest possible Social Security paycheck to retire comfortably.

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