Actionable Strategies and Money-Saving Tips
Understanding the basics is the first step. Now, let’s explore the most effective strategies for financial optimization and maximizing your lifetime Social Security income. These are not secret “social security hacks,” but rather proven approaches based on the system’s rules.
Strategy 1: Delay Claiming Until Age 70 If Possible
As our example showed, patience pays. Delaying your claim from your FRA to age 70 is the most powerful tool you have to increase your benefit. The 8% annual increase is a guaranteed return that protects you against outliving your savings, also known as longevity risk. If you are in good health and have other sources of income (like a pension, 401(k), or part-time work) to bridge the gap, waiting is often the smartest financial move. Think of it as purchasing a higher, inflation-protected income stream for the rest of your life. This higher base amount also means your future cost-of-living adjustments (COLAs) will be larger, further compounding your benefit over time.
Strategy 2: Coordinate Thoughtfully with Your Spouse
For married couples, Social Security planning should be a team sport. Coordinating your claiming decisions can dramatically increase your combined lifetime income and provide better protection for a surviving spouse. The higher-earning spouse delaying until age 70 is often the cornerstone of a strong strategy. This is because when one spouse passes away, the survivor is entitled to receive the larger of their own benefit or 100% of their deceased spouse’s benefit. By maximizing the higher earner’s benefit, you are also maximizing the potential survivor benefit, providing a crucial safety net for the future.
A lower-earning spouse may be eligible for a spousal benefit, which can be up to 50% of the higher-earning spouse’s full retirement benefit. For example, if the higher earner’s FRA benefit is $2,400, the spousal benefit could be up to $1,200. This can be a valuable source of senior income, but the timing needs careful consideration. A couple might decide for the lower-earning spouse to claim their own benefit early for some cash flow, while the higher earner delays to maximize their benefit and the future survivor benefit.
Strategy 3: Check Your Earnings Record and Work Longer
Your benefit is calculated on your 35 highest-earning years. Many people have years with low or zero earnings due to raising children, unemployment, or starting their careers. Working even one or two more years in your 60s, when you are likely at your peak earning potential, can replace a low-earning year from your past. This simple act can give your 35-year average a meaningful boost, increasing your monthly benefit for life.
It is critical that you verify your earnings record is accurate. You can do this by creating an online account. For official information on Social Security and Medicare, visit SSA.gov and Medicare.gov. Federal tax information is at the IRS. Mistakes on your record can and do happen, and an error could cost you money every month. If you find a discrepancy, contact the SSA with proof (like old tax returns or W-2s) to get it corrected.
Strategy 4: Minimize Taxes on Your Benefits
Yes, your Social Security benefits may be taxable. The amount of tax you pay depends on your “combined income” (also called “provisional income”). The formula is: Your Adjusted Gross Income (AGI) + Nontaxable Interest + 50% of Your Social Security Benefits.
Here are the 2024 federal thresholds for individuals:
- If your combined income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits.
- If your combined income is more than $34,000, up to 85% of your benefits may be taxable.
For married couples filing jointly:
- If your combined income is between $32,000 and $44,000, up to 50% of your benefits may be taxable.
- If your combined income is more than $44,000, up to 85% of your benefits may be taxable.
To manage this, be strategic about your retirement account withdrawals. Withdrawals from traditional IRAs and 401(k)s count as income and can push you into a higher tax bracket for your benefits. Spreading out withdrawals or using funds from a Roth IRA (which are tax-free) can help keep your combined income below these thresholds.
