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January 31, 2014
Make the most of Social Security, whether you’re still actively working or ready to retire.
The turning of the calendar year is a classic time to evaluate your financial goals. If you’re rapidly approaching retirement age, or if you’re already there, Social Security benefits are probably near the front of your thoughts.
Social Security helps supplement the lives of millions of retired Americans. But even though every worker gets closer to retirement with each passing day, planning for it can still be a bit of a mystery.
Here are 5 tips for 2015 that can help you make the important decisions that lie ahead:
1. Don’t File for Benefits Until Your Full Retirement Age
As you enter your 60s, you might get a bit impatient for collecting on the Social Security benefits you’ve paid into your whole working life. While you can collect benefits as early as age 62, that’s not often the best approach.
Taking early benefits will permanently cut the amount you’ll receive. Benefits won’t go up when you reach full retirement age, either, which is between 65 and 67. But if you wait to file, your benefits could be nearly double that of early retirement, according to USA Today.
Filing early is right for certain, special circumstances.
2. Or Do File Early If Your Circumstances Support It
You may have a good reason to file for early Social Security benefits. Bankrate explains that the loss of a job is high on the list of motivators. If you lose your job and have difficulty finding a new one, which is unfortunately all too common, retiring early will give you an income.
IF you have dependent children, that may be another reason to file early.
Lack of retirement savings or illness may also support filing early. If you haven’t saved as much as you’d like, the lower Social Security benefits may be enough to help boost your standard of living. There is a caveat that accompanies filing early because of a very serious, terminal illness. If you’re married, your surviving spouse’s benefit will be permanently reduced.
3. Understand What Social Security Can (And Can’t) Do
There may have been a time when Social Security was enough to live on comfortably. And for some people with a modest lifestyle in a low cost-of-living area, it might still be enough. But you’ll need to learn what your benefits will be, and then plan accordingly.
Benefits are based on your pre-retirement income. The average benefit for 2015 is $1,328 monthly, and the maximum is $2,663. Yours will vary from these, depending on your earnings before you retire.
4. Remember that Benefits Aren’t Static
The average and maximum Social Security benefits in 2015 will bear little resemblance to those of 30 years ago. The cost of living is astonishingly higher now than it was then, and it keeps going up. Fortunately, Social Security usually follows suit, at least to a certain degree.
In 2015, Social Security benefit recipients can expect a raise that’s intended to help offset the higher cost of living. It’s only a 1.7 percent increase over 2014’s benefits, but that results in a higher monthly payment for both Social Security and Supplemental Security recipients.
Don’t let tax worries keep you from enjoying life.
5. Make Peace with Taxes
There’s a lot of truth to the old saying that taxes are one of life’s certainties. Social Security benefits are taxable. And the more you earn before retirement, the higher the percentage will be. USA Today says that for some higher earners, 85 percent of their benefits are taxable.
The making peace part comes in when you realize that there’s no perfect way to deal with taxes. If you earn less before retirement, you’ll pay lower taxes on your benefits later. But you’ll also have less to save and invest toward retirement while you’re still working. If you earn more, you’ll pay higher taxes later. But you’ll have more to save and invest.
Retirement planning usually focuses more on saving and investing, while Social Security is almost considered a given. But that really couldn’t be less true. Workers who have paid into Social Security are entitled to collect benefits later. But the way you approach it will partly determine how much you’ll receive, and when.
Social Security will probably always evolve to meet the changing needs of society. Fortunately, the evolutions for 2015 aren’t Earth shattering.
To get a snapshot of where you stand right now, try the NewRetirement Retirement Calculator. Answering a few simple question lets you see how Social Security factors into your overall retirement goals, which puts you in better control.
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