Several municipalities are holding seminars that give retirees advice on how to get the most out of their Social Security benefits. The following are a few tips.
By: Joseph Dixon
Seniors and others receiving Social Security payments saw a 1.7 percent increase in their benefits amounts starting Jan. 1. This was due to the 1.7 percent rise in the consumer price index, which is the measuring stick the Social Security Administration uses to determine inflationary increases to benefits. Still, the average recipient will receive only $1,149 per month in 2013. Several municipalities, including Pierce County in Washington, are holding seminars that give retirees advice on how to get the most out of their Social Security benefits. The following are a few tips that can help you maximize and supplement your benefits.
How Benefits Are Calculated
Social Security benefits are calculated based on how much money you made throughout your working years. The SSA calculates average indexed monthly earnings (AIME) based on your highest-earning 35 years of work. Thus, if you work for 45 total years, only the highest 35 years will be included in the index. However if you work only 30 years, five zeroes will be calculated into your final index, thus lowering your benefits. Because higher earners pay more in Social Security taxes, they receive more in benefits at retirement.
The primary insurance amount (PIA), or monthly benefit amount, is derived from a formula that takes into account when someone retires. Anybody who retires before full retirement age (62 to 67 years of age, depending on several factors) is penalized and will receive a lower PIA than they would have if they’d waited until their full retirement age. Your benefits also increase by 8 percent each year you wait after full retirement age to begin collecting.
Invest Before Retirement
The more you work after retirement, the less you can collect in Social Security. This is why long-term investments are so important for anyone over the age of 35. Thirty-year Treasury bonds are relatively safe investments because they are backed by the government and guarantee returns based on the initial coupon interest rate. For example, if the bond has a face value of $3,000 with a 5 percent coupon rate, it will typically pay $150 in interest every six month until maturity. Participation in your employer’s 401K plan will give you additional funds during retirement, whether you take a lump sum or periodic payments. Most contributions to 401Ks are pre-taxed, thus lowering your taxable income each year you participate.
Gold and silver are also long-term investments options. The price of gold has grown more than 500 percent since 2002 and silver over 1,000 percent. Gold and silver bullion, sold by dealers such as US Money Reserve, are exempt from capital gains taxes unlike gold and silver exchange-traded funds. Gold has always been a safe hedge against inflation and is likely to continue its ascension in value due to the liberal printing policies by the global central banks.
You can log onto the SSA anytime website and download a personalized statement of your earnings up to that day. It will give you a rough estimate as to what your benefits will be depending your age of retirement. Several free websites provide tools to help you crunch the numbers and develop plans to increase your benefits. Analyzenow.com has a Social Security planning tool that requires Microsoft Excel to use. Other websites, such as socialsecuritychoices.com, charge fees, but offer sophisticated, customizable reports for single and married individuals.
About the Author:
Joey is a financial aid advisor who lives in Georgia.