Received a Social Security benefit increase? Take the right steps to maximize your new income and ensure a secure retirement.
Verify Your Social Security Benefit Increase
Before diving into spending that extra cash, ensure your increase matches the notice you received from the Social Security Administration (SSA). For millions of Americans, the Social Security benefit increase thanks to the Social Security Fairness Act has resulted in monthly boosts; on average, retirees may see an increase of about $360. Spousal beneficiaries might benefit from even larger increases—averaging around $700, and widow(er)s potentially seeing $1,190 more monthly.
If your actual benefit doesn’t align with SSA’s notification, it’s crucial to reach out for clarification. Verification can be done through a quick phone call, email, or a visit to a local field office. Getting this right ensures your financial plan is built on accurate information.
Review Your Retirement Budget
Next, it’s time to reassess your retirement budget. With extra monthly income, it might be tempting to adopt a more lavish lifestyle or use the funds to pay off existing debts. The Social Security benefit increase can present a unique opportunity to modify withdrawal strategies from your retirement accounts.
Consider these options
- Maintain Withdrawals: If you're comfortable with your current retirement strategy, you might choose to continue withdrawing the same amount from your investments.
- Reduce Withdrawals: A more conservative approach would involve reducing withdrawals by the amount of the Social Security benefit increase. This strategy helps stretch your retirement savings, minimizing the risk of outliving your funds and mitigating the potential impact on your tax situation.
Evaluating how your increased income will influence your financial health today and in the future is vital. A well-structured budget can provide peace of mind and stability during retirement.
Assess Tax Implications of Your New Benefits
Increased benefits can lead to complex tax implications. Understanding the potential tax implications of Social Security benefits is key. For some recipients, as much as 85% of Social Security benefits may be subject to taxation, depending on your total income.
When revising your financial plan, consider these tax strategies
- Adjust Retirement Withdrawals: Decreasing distributions from tax-deferred accounts such as traditional IRAs or 401(k)s can help lower your adjusted gross income (AGI), which influences your taxable Social Security benefits.
- Withhold Taxes: If you anticipate owing taxes due to heightened benefits, consider setting aside funds for tax obligations or requesting that the SSA withhold extra for you. Consulting with an accountant can help clarify the best strategies tailored to your situation.
Planning for potential taxes now can save you from unwelcome surprises down the line. Knowing how to navigate these complexities is beneficial not just for the current year, but as you prepare for future cost-of-living adjustments (COLAs) in your benefits, it’s prudent to plan ahead.
The Social Security Fairness Act and the benefit increases it brought have opened doors to improved financial security for many. Seizing the opportunity these changes present can lead to a more prosperous retirement. By verifying your income, updating your budget, and understanding tax implications, you're taking proactive steps toward financial well-being.
Lastly, don't overlook the opportunity to increase your retirement income using strategies that many retirees miss. These tips could lead to significant financial advantages, including potentially over $22,924 more in benefits each year when it comes to maximizing Social Security benefits. Join resources like Stock Advisor to discover effective methods to enhance your retirement income.
Embracing these steps can enhance your quality of life in retirement, making that Social Security benefit increase work diligently for you.