Delay collecting the benefit
One strategy to potentially reduce the impact of the projected reduction in 2033 is to delay taking benefits until reaching full retirement age or beyond. (If possible, of course.)
For those born after 1943, each year of delay beyond full retirement age can result in an 8% increase in the monthly benefit amount. For example, if your full retirement age is 67 and your monthly benefit amount would be $2,000 at that age, but you delay taking benefits until age 70, you could potentially receive a monthly benefit amount of $2,480 — a healthy 24% increase.
Delaying the start of benefits may not be feasible or desirable for everyone. Other factors such as health and financial need should be taken into consideration. Working with a financial advisor or retirement specialist can help you determine the best strategy for your individual circumstances and goals.
Let the lower income spouse collect social security first
If you’re married, another idea is to coordinate your claiming of Social Security with your spouse.
One strategy is for the lower-earning spouse to start claiming benefits at age 62, while the higher-earning spouse delays claiming benefits until full retirement age or beyond. This can allow the higher-earning spouse to accrue Delayed Retirement Credits and potentially increase their monthly benefit amount.
Additionally, this strategy can provide a source of income for the household while the higher-earning spouse delays claiming benefits. The lower-earning spouse's benefit amount may be less than the higher-earning spouse's benefit amount, so starting benefits earlier can help maximize the overall benefit for the household.
Again, working with a financial professional can help you pick the best path for your given your specific circumstances.
If you have other sources of taxable income — distributions from traditional IRAs or 401(k) plans — your Social Security benefits may be subject to federal income tax. The amount subject to tax depends on your combined income, which is calculated by adding half of your Social Security benefits to your other sources of income.
To minimize the tax impact on your Social Security benefits, consider converting some of your traditional IRA or 401(k) funds to a Roth IRA. Roth IRA distributions are tax-free and do not count towards your combined income, which can help reduce the amount of your Social Security benefits subject to federal income tax.
You can also try to keep your combined income below the income threshold at which Social Security benefits become subject to federal income tax.
That said, tax laws and regulations can and often change. Once again, working with a financial advisor or tax professional can help you develop a personalized retirement income strategy.
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