You probably rely heavily on Social Security to pay your bills during your retirement. Even if you start your old age years with decent savings, you could end up depleting your IRA or 401 (k) over the course of your life.
The advantage of Social Security is that it is designed to give you a monthly benefit for the rest of your life. And if you play your cards right, you can help keep your monthly benefit as generous as possible. However, these seemingly innocent mistakes could lead to lower benefits and more financial hardship throughout your old age.
1. End your career a few years earlier
The social security benefits you are entitled to in retirement will depend on your income during your top 35 years in the workforce. But for every year that you don’t have registered income, you’ll have $ 0 factored into your benefit equation.
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Now let’s say you’ve taken time off from your career to raise kids, travel, or focus on volunteering. You might be in your early sixties but only have 33 or 34 years of income under your belt. Unfortunately, this could prove problematic from a Social Security perspective, in which case it might pay off to work another year or two to get a higher benefit.
2. Subscribe to benefits in conjunction with Medicare
Eligibility for Medicare begins at age 65 and you can enroll a few months before your 65th birthday. Once you’ve signed up for Medicare Part B, which covers outpatient services and diagnostics, you’ll need to pay a monthly premium, the cost of which changes from year to year.
If you do not yet receive Social Security when you enroll in Medicare, you will have the option of paying your Part B premiums directly. But if you have Social Security, you can have these premiums deducted from your monthly benefits. to avoid these hassles.
You might be tempted to purchase Social Security at the same time as Medicare just for convenience. But by doing so, you will reduce your monthly benefit. This is because you do not receive your full benefits based on your salary history until you reach full retirement age, or FRA.
The FRA does not intervene until the age of 66 at the earliest. And if you were born in 1960 or later, FRA is only 67 years old.
3. Do not declare income from secondary employment
You can be motivated to take a secondary position in addition to your main job to increase your income. But if you don’t report the money you make from that second gig, it won’t count towards a higher Social Security benefit down the line.
The monthly benefit to which you are entitled at retirement is not only based on salary. If you are working as a freelance consultant, this income may also be taken into account when calculating your benefit. But if you don’t report it, your benefit will not benefit from this increase.
Incidentally, it’s important to report all of your income to comply with IRS rules. You could face penalties if you don’t file and pay taxes on the income you earn at the same time.
Don’t reduce your benefits unnecessarily
No matter what your pre-retirement savings balance looks like, there is no sense in reducing your Social Security income due to negligence. Now that these blunders are on your radar, you can take steps to avoid them – and potentially earn a higher profit for life.
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