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Social Security benefits do more than just cover your basic expenses in retirement. For example, by applying some targeted strategies, you can make better use of this stable source of income. According to various financial planners, investing, managing taxes, eliminating debt, and more can help you maximize the amount you receive each month.
Find out: How far will $750,000 in retirement savings and Social Security go in each state?
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If you want to make the most of your benefits, here are six smart ways to spend your money, approved by experts, to consider.
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Combine Social Security benefits with other investments
Oscar Skjalpe and Shane O’Hara, CFPs at Provise Management Group in Tampa, Fla., said Social Security income can help grow your retirement portfolio.
If you receive Social Security benefits and have excess cash flow, it’s a great time to invest in long-term assets. Investing in stable assets with growth potential can leverage Social Security as a “reliable financial foundation” to help build long-term wealth, they said. They recommend that people implementing this strategy take steps to diversify their holdings and ensure they have an emergency fund.
Read more: I’m retired, but I regret claiming Social Security at 70 — here’s why
reduce tax burden
Jamie Yarbrough, a financial planner at Stonebridge Wealth Management, explained that retirees receiving Social Security benefits often face tax issues, especially if they have other sources of income. . However, he said there are several tax-saving strategies that can help reduce the tax burden associated with Social Security benefits.
“Understand how Social Security benefits can be taxed up to 85%,” he said. “Delay your Social Security benefits to reduce taxes from other tax-advantaged accounts, such as Roth IRAs and tax-efficient taxable accounts. Make strategic withdrawals from taxable, tax-deferred, and tax-free accounts. Consider a partial Roth conversion, which spreads your taxable income over multiple years and potentially reduces your income and required minimum distributions (RMDs) in the future.
“Retirees can use tax-loss harvesting through taxable investment accounts to offset capital gains with capital losses,” Yarbrough added. “Retirees who commit to philanthropy can reduce their taxable income by taking advantage of qualified charitable distributions (QCDs). QCDs allow retirees age 70.5 or older to collect distributions from their IRAs without including them in taxable income. You can directly donate up to $100,000 annually to qualified charities, which reduces your taxable income and potentially avoids paying higher tax rates on your Social Security benefits.
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“Finally, retirees can time capital gains and income, capital gain realizations, and other forms of income to avoid pushing themselves into higher tax rates.”
get rid of debt
O’Hara and Skjalpe said using Social Security benefits to eliminate high-interest debt can improve financial well-being.
“This approach allows additional income to be put toward savings and investments, which can lead to wealth growth over time,” they explained. “Not all debt is created equal, so we recommend working with a financial planner to determine whether it makes financial sense to apply for benefits.”
Job after retirement
O’Hara and Skjalpe said most retirees don’t feel motivated to work again, but many decide to return to part-time work for the extra income or social aspect.
“There are no income limits as long as you are above Full Retirement Age (FRA),” they explained. “Earning extra income through part-time work or a side hustle while receiving Social Security can give you additional funds to invest and save.”
You can increase your wealth even with small social security benefits
Russell E. Geyser III, MBA, CFP, co-founder of Income Plan Headquarters in New York, says it’s possible to grow wealth with modest Social Security benefits, but it really depends on your spending goals. Ta.
“Ideally, you should identify their income requirements from other sources and ensure they have enough capital (investments, cash, etc.) to provide that income throughout their lifetime,” he says. explained. “That way, they can divide up their wealth and increase their discretionary investments for the future.”
Temporarily cancel the decision to claim social security
Geyser said that when a person turns 62, they receive a letter from the Social Security Administration inviting them to collect benefits.
“This is just an invitation, not an obligation,” he said. “As tempting as it may be, you need to consider income limit tests, spousal benefits, survivor benefits, income planning, etc.”
Geyser says most people claim benefits when they turn 62, but working with a planner who understands the ins and outs of the system can make a big difference in whether or not you claim. He said there is.
“If you have applied for benefits and are concerned about your decision, you have the option of canceling your decision to apply within a year of receiving your benefits, but you will be obliged to return the money,” he said. explained. “You can only do this once.”
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This article originally appeared on GOBankingRates.com: Retirement Expert: 6 Smart Money Moves You Didn’t Know You Could Make with Social Security
