Don’t Leave Money on the Table
As you approach retirement, the thought of Social Security often brings mixed feelings. For many, it’s seen as a safety net, a simple government check that helps cover living expenses. But what if I told you that overlooking a few key aspects of Social Security could cost you tens or even hundreds of thousands of dollars? Just like a well-executed play in the NBA, understanding the nuances of Social Security can make all the difference in your financial game plan.
In this post, we’ll dive into four critical areas that can help you supercharge your Social Security benefits. By the end, you’ll have a clearer understanding of how to make the most of this essential retirement tool.
Understanding the Earnings Test
What You Need to Know
The earnings test is a rule that often scares people away from claiming Social Security early. Here’s the truth: it’s not as scary as it sounds.
Full Retirement Age: For many, this is age 67. If you claim benefits before this age and continue to work, there are limits on how much you can earn without penalties.
2025 Earnings Limit: If you earn more than $23,400 before turning 67, Social Security will withhold $1 in benefits for every $2 you earn over that limit.
Higher Limit at 67: In the year you turn 67, the limit jumps to $62,160, and the penalty is less severe—$1 for every $3 over the limit.
The Silver Lining
The best part? The money withheld isn’t gone forever. Once you reach age 67, Social Security recalculates your benefits, giving you credit for the months they held back payments. This means you could end up with a bigger monthly check for the rest of your life. Think of it as a strategic play that pays off in the long run.
The Importance of Your Wage Base
Play the Long Game
Many high earners mistakenly believe that their Social Security benefits are maxed out just because they’ve always made good money. Here’s where they go wrong:
Top 35 Years: Social Security only considers your top 35 highest earning years to calculate your benefits. If you have fewer than 35 years of work, zeros are added for the missing years, which can drag down your average.
Wage Base Cap: For 2025, the wage base is $176,100. Any income above this amount doesn’t contribute to your future benefits.
Maximize Your Score
To get the highest benefit possible, aim to earn at or above the wage base for 35 full years. Your earnings record isn’t set in stone; those last few years of work can significantly impact your benefits. Just like a basketball player who trains hard in their final years to secure a championship, you can boost your Social Security score by focusing on your earnings.
The Real Maximum Benefit
It’s Bigger Than You Think
Many people see the maximum monthly benefit of around $4,000 at age 67 and think that’s the ceiling. But there’s more to the story:
Delayed Retirement Credits: For every month you wait to claim benefits after age 67, you earn delayed retirement credits that increase your check by 8% each year.
Waiting Pays Off: If you wait until age 70, your maximum monthly benefit can exceed $5,000. That’s over $1,000 more every month for the rest of your life!
Bridging the Gap
Not everyone can afford to wait, but if you can bridge the gap between your retirement age and when you start claiming Social Security, you’ll be in a better position to maximize your benefits. Think of it like a quarterback who takes a few extra seconds in the pocket to find the perfect pass—sometimes, waiting can lead to a much bigger payoff.
Beware the Tax Ambush
Understanding Provisional Income
Many retirees overlook the fact that Social Security benefits can be taxed. Here’s how it works:
Provisional Income Calculation: This includes your adjusted gross income, any non-taxable interest, and half of your Social Security benefits.
Tax Threshold: If you’re a couple filing jointly and your provisional income exceeds $44,000, up to 85% of your benefits can be taxed.
Plan Ahead
When planning your retirement income, consider all sources, including pensions and required distributions. Just like a well-balanced diet is crucial for your health, a well-thought-out tax strategy is essential for your financial health in retirement.
Recap and Next Steps
In summary, understanding these four key aspects of Social Security can make a significant difference in your retirement planning:
Earnings Test: It’s an adjustment, not a penalty.
Wage Base: Focus on your top 35 years to maximize your score.
Maximum Benefit: Delaying your claim can lead to a much higher monthly check.
Tax Ambush: Be aware of how your Social Security benefits can be taxed.
For a deeper dive into these topics, check out the full video on our website. Don’t leave money on the table—make sure you’re making the most of your Social Security benefits!
Education only, not advice. Consult your professional(s).