Want to make the most of Social Security income possible? It’s a rhetorical question. Of course, you want more of the retirement benefit that lasts the rest of your life. Here are six strategies to help you get all the pennies you deserve from Social Security.
1. Check your income history
Social Security calculates your benefit based on your income history. If this income history is incomplete, your benefit will be artificially low.
You can access your earnings history by creating an account with my Social Security. You can also ask the Social Security Administration to send you a copy of your income statement along with Form SSA-7004.
If income is not on your record, gather tax returns, payslips, or any other documents you have and contact your local Social Security office.
2. Report income from hustle
Your side hustle income is taxable. Not reporting this income can get you in trouble with the IRS. Also, unreported earnings won’t show up on your income statement, which can ultimately reduce your Social Security benefits.
You will likely report your self-employment earnings on your tax returns, using IRS Form 1040, Schedule C and Schedule SE. You will use Schedule SE to calculate your self-employment tax, which covers your Social Security and Medicare contribution.
3. Work 35 years or more
The Social Security formula calculates the average of your historical earnings to calculate your benefit. This average takes into account the 35 years when you earned the most money. If you worked less than 35 years, the average calculation uses zeros for the missing years.
For example, let’s say you worked for 30 years and earned $50,000 in all those years. Assuming zero income for five years, your 35-year average is $42,860. The average increases for each additional year of work, reaching the full $50,000 once you’ve worked 35 years.
The point is to work 35 years if you can. This way, you shouldn’t have years of zero income that will dilute your earnings and, therefore, your benefits.
4. Wait for FRA to recover
Full Retirement Age (FRA) is the age at which you are entitled to your full unreduced Social Security benefits. If you start collecting social security before FRA, your benefit will be lower. Social Security applies a percentage discount for each month you ship your benefit from FRA. This total reduction can reach 30%.
5. Plan your earnings
If you work and collect social security before FRA, you are subject to income limits. If you exceed these limits, your benefits are reduced.
You might also see a Medicare-related reduction in your Social Security with an increase in your taxable income. Higher taxable income (which includes investment income) may trigger a new, larger Medicare premium surcharge against your Social Security. This can happen if you have made a Roth conversion or made a large investment gain.
To make matters even more confusing, the surtax will hit your benefit two years after the income was earned.
In the event of a Roth conversion, you can accept the temporary hit to your social security in exchange for transferring your money to a tax-free account. But in other scenarios, planning your income schedule can help you reduce or avoid an additional surcharge.
6. Pay your debts
Social Security will garnish your benefits for certain types of unpaid debts. These debts include unpaid federal taxes, child support, alimony, student loans owed to the Department of Education, and court-ordered victim restitution.
To appeal a garnishment, you must file it directly with the IRS, not Social Security. You would probably need a lawyer to help you, so it’s best to avoid these situations if you can.
Get all you can from Social Security
Even under the best of circumstances, Social Security doesn’t pay much. For the average worker, the federal retirement benefit replaces about 40% of work income. You want to stay close to this benchmark if you can.
Correcting missing or inaccurate income, waiting for FRA to be collected, smoothing out income spikes, and paying your debts on time can keep you from leaving Social Security money on the table.