Social Security plays a vital role in retirement planning, but maximizing your benefits requires taking deliberate steps before filing. Here are five essential actions to consider prior to submitting your application for Social Security.
1. Verify Your Earnings Statement
The Social Security Administration (SSA) calculates your benefits based on your lifetime earnings, which reflect an average of up to 35 years of income. If your work history falls short of 35 years, the missing years will be treated as zeros, potentially lowering your benefit amount. Ensuring the accuracy of your earnings statement is crucial as higher lifetime earnings lead to enhanced benefits.
You can examine your statement by creating an account on the SSA’s website or by requesting it through mail. This document will outline your annual earnings, which you should confirm against your tax records. If discrepancies arise, you generally have three years, three months, and 15 days post the taxable year to request corrections.
2. Explore Claiming Scenarios
While you can claim your full Social Security benefit at your full retirement age—between 66 and 67 depending on your birth year—delaying benefits until age 70 can yield an additional 8% increase per year.
The SSA offers various tools and calculators that help you estimate your potential benefits based on your intended claiming age. Understanding these figures alongside your living expenses will assist you in determining the optimal time to start receiving Social Security payments.
3. Collaborate with Your Spouse
For married couples, coordinating Social Security strategies can optimize household benefits. Couples can choose to claim benefits based on their work records or up to 50% of their spouse’s benefits upon reaching full retirement age.
In some instances, it may be beneficial for one spouse to begin receiving benefits while the other delays their claim. Engaging in a discussion with your spouse is essential to evaluate the best options for your situation.
4. Plan for Tax Obligations
Up to 85% of Social Security benefits can be subject to federal income tax, contingent on your overall income levels. Your tax liability on Social Security is influenced by your “combined income,” including your adjusted gross income, tax-exempt interest, and half of your benefits.
Understanding which tax bracket you fall into and the expected tax on your Social Security income is crucial for financial preparation. Setting aside funds for any potential taxes will prevent surprises during tax season.
5. Assemble Your Application Materials
You may initiate your application for Social Security up to four months prior to receiving your first payment. The SSA will require specific documentation, including your tax return and proof of age such as a birth certificate.
Before beginning the application process, ensure you have all the required documents on hand.