Approaching retirement age can raise concerns about maximizing your retirement income. Luckily, Social Security is a government program that offers retirement benefits to those who qualify. It can play a significant role in your retirement income plan. This write-up will cover the fundamentals of Social Security, its benefits, and how it can aid in achieving a prosperous retirement.
What is Social Security?
Social security is a program administered by the government that offers retirement, disability, and survivor benefits to qualifying individuals and their families. The program was established in 1935 as part of the New Deal and has been a cornerstone of the American retirement system ever since. You should have worked and paid Social Security taxes for at least ten years to qualify for Social Security retirement benefits. Your Social Security retirement benefits are determined by averaging your highest 35 years of earnings. Therefore, the more you earn and the longer you work, the higher your benefit will be.
When can you start receiving Social Security benefits?
It is possible for you to begin receiving benefits from Social Security as early as age 62, however, your benefits will be permanently reduced if you do so. Alternatively, you can wait until your full retirement age (currently 66 or 67, depending on your birth year) to receive your full benefit, or you can delay starting your benefits until age 70 and receive an even higher benefit. The decision of when to start receiving Social Security benefits is complex and depends on many factors, including your health, financial situation, and retirement goals. Consider consulting with a financial advisor or retirement planner to help you make the best decision.
What will you receive as Social Security benefits?
Your Social Security retirement benefit is determined by your earnings history and your retirement age. It is estimated that the average monthly Social Security retirement benefit in 2022 will be $1,543, according to the Social Security Administration (SSA). However, your benefits may be higher or lower depending on your circumstances.
You can check your estimated Social Security benefit by creating a mySocialSecurity account on the SSA’s website. This can be a valuable tool for planning your retirement income strategy.
Spousal and survival benefits
If you are married, divorced, or widowed, you may be eligible for spousal and survival benefits based on your spouse’s or former spouse’s earnings record. Spousal benefits allow you to receive a portion of your spouse’s Social Security benefits while your spouse is still alive, and survivor benefits provide a source of income if your spouse dies. Spousal and survivor benefits can be complex, and it’s important to understand the rules and eligibility requirements before making any decisions. In addition, you should consult a financial advisor or retirement planner to help you maximize these benefits.
Social Security and Retirement Planning
Social Security can be an important part of your retirement income strategy, but it’s crucial to remember that it is just one piece of the puzzle. Other sources of retirement income may include pensions, savings, investments, and other government benefits such as Medicare and Medicaid.
To maximize your retirement income, you may want to consider:
- Maximizing your Social Security benefits by delaying your benefits start date or using spousal or survivor benefits.
- Building a diversified retirement income portfolio that includes multiple sources of income.
- Creating a retirement budget and income plan that takes into account your expected expenses and income sources.
- Planning your retirement with the help of a financial advisor or retirement planner.
The Future of Social Security
Social Security’s future is a topic of ongoing debate and speculation, with its funding coming from payroll taxes paid by workers and their employers. Its financial stability is a major concern due to the program facing a funding shortfall, projected to worsen over time. This is due to factors such as an aging population, declining birth rates, and longer life expectancies. Proposals to reform Social Security have been put forward, including raising the retirement age, increasing payroll taxes, reducing benefits for high-income earners, and changing how benefits are calculated. Additionally, the changing nature of work presents a challenge for Social Security as more people engage in non-traditional work arrangements and may not contribute to the program through payroll taxes. This could lead to a decline in the number of workers supporting the program.
The future of Social Security hinges on how policymakers tackle the challenges it faces. Though there’s no agreement on the optimal method to reform the program, it’s evident that some action is necessary to guarantee its sustainability and offer economic stability to retirees in the coming years.
Tax season is usually the first quarter of the year. There is paperwork to be organized to create a return that is accurate and doesn’t hold any financial surprises for your company. Tax season is almost here. So, whether you love it or hate it, preparing your taxes must be done every year. You can choose to do them yourself or hire someone to help you. Whichever route you choose, you need to know things to guarantee that you get the best return. Taking the time to prepare for tax season in advance ensures that you can proceed with plans without the interference of Tax Day. Here are steps you should take while preparing for tax season.
- Get organized. This is the first move to make. Unfortunately, many people struggle with doing this task. It is advisable to do this from the beginning of the year to avoid getting stuck during tax season. So, organizing will make things easier, whether you are doing your tax yourself or hiring someone to do it for you. You may need to keep some documents, including receipts, donation letters, bank statements, financial statements, and employer statements. Anything has to do with essential things you have done in the last year.
- Be aware of deductions. Every tax jurisdiction has a list of acceptable and unacceptable deductions. A deduction can generally be claimed for anything related to your business. That said, it is still essential to learn what deductions your startup or entrepreneurial endeavor can take full advantage of to obtain a lower tax bill.
Here’s a list of some tax deduction:
- Startup Expenses. You could deduct the costs of opening your business, including acquiring permits, licenses, or registrations.
- Health and Retirement. Most small business owners are responsible for their health, unlike employees. Therefore, some health expenses, retirement plans, and other related expenses are tax-deductible.
- Year-end. To get year-end tax savings, you should take advantage of several year-end deductions, such as charitable contributions, capital cost allowance, and staff bonuses.
- Get your financial statements, this will help you stay organized. The key to an easy tax season is comprehensive and accurate financial statements. Here are some ways you can organize these documents.
- Spreadsheets. You can make use of a spreadsheet template. You can check online to download one or pay someone to build a template for you. Alternatively, you can send your records to your accountant to generate financial statements or reports.
- Accounting software. There are so many accounting software that helps generate account statements. You will find paid and free software.
- Book-keeping. Considered the most efficient way to get your financial statements. A bookkeeper will create accurate financial statements based on the entered and categorized transactions. They will also prepare your year-end financial reports, which can be used to file taxes or handed to a tax professional or accountant to file the tax.
- Protect yourself from tax fraud as tax season approaches, many people start getting calls from people claiming to be IRS. Always be aware that these tax organizations will not call you or send you messages reminding you about tax season and instructing you on what you need to do.
Final words
Using an excel spreadsheet to organize receipts and track those which qualify for deductions will make it easy for you to file your tax. Doing this will save you a lot of time during tax time. Also, this will lead to tax time being less dreadful, and you are more inclined to tackle the tax forms knowing you have all you need ready and prearranged. One of the most significant forms is the charitable donations form. Even the IRS reports that many people don’t fill this portion of paperwork out correctly, thereby losing out on deductions. Therefore, a proper record of donations is required. Make time to learn how to correctly fill out the tax forms before being stressed out. Not only will this assist you in knowing what sort of receipts are beneficial to keep, but your reporting will also be more precise. It is no secret that incorrectly filled tax forms may lead to an audit or delays, at the very least. By comparison, most of us agree that taking time to learn the forms is worth everything. If you ever have any doubts, seek a tax advisor, don’t assume anything. Tax advisors are certified and experienced to give you the best advice. Seeking professional help can make all the difference.