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3 Smart Social Security Moves for Before and After You Retire

Matthew Frankel, The Motley Fool

If you're getting close to retirement age, Social Security should be a major component of your retirement planning. It's important to know how much you can expect from Social Security, when you should plan to start taking benefits, and how much tax you can expect to pay after you start collecting your monthly checks.

With that in mind, here are three smart things you can do to get a head start on the Social Security planning process.

Social Security card inserted in a stack of money.

Image source: Getty Images.

Check your Social Security statement every year

If you haven't done so already, create a "my Social Security" account at www.ssa.gov. This will allow you to view your annual Social Security statements, which contains valuable information about your future benefits. While statements used to be mailed annually to all American workers, the Social Security Administration now mails statements only to workers 60 and over who haven't yet claimed benefits and who haven't signed up for an online SSA account.

Your Social Security statement contains lots of valuable information that can help you in your retirement planning. It provides an estimate of your future benefits based on your current work history, at your full retirement age as well as if you claim benefits at age 62 or age 70. In addition, on your Social Security statement, you can also find:

  • Whether you have earned enough credits to qualify for benefits
  • How much you could get in disability benefits
  • If you die, how much your spouse and children could get in survivors benefits
  • If you're eligible for Medicare benefits at age 65
  • Your earnings record, which tells you how much of your earnings were taxed for Social Security and Medicare for each year of your working lifetime
  • How much Social Security and Medicare tax you've paid in your lifetime
  • Appropriate contact information if you have questions, need help, or notice inaccurate information

Coordinate your benefits with your spouse

If you're married, your spouse's Social Security should factor into your retirement strategy.

For starters, if your spouse didn't work, or earned relatively little throughout their working lifetime, they may be entitled to a spousal benefit based on your work record. However, they can't claim a spousal benefit based on your work record until you claim your own retirement benefit, so keep this in mind.

Even if your spouse is not entitled to a spousal benefit, it's still a good idea to consider both spouses' potential future benefits when deciding when to claim.

For example, one strategy is to have the higher-earning spouse delay Social Security as long as possible, where delayed retirement credits will have the biggest effect, while the lower-earner claims their benefit earlier in order to start some retirement income sooner.

In other words, let's say that you're entitled to a $1,800 monthly benefit at full retirement age and your spouse is entitled to $1,200. Your spouse could go ahead and claim their benefit on time, which would get you some cash flow from Social Security right away. Meanwhile, if you delay your own benefit until age 70, it could result in a boost of up to $576 per month for life, depending on what year you were born (this affects your full retirement age).

This is just one possible example of how spouses can use both of their benefits when crafting their retirement strategy. However, my point is to get you thinking about your Social Security benefits combined as well as individually when deciding what's best for you and your family.

Live in a state that doesn't tax Social Security benefits

To be clear, I'm not suggesting that you move to a different state for the sole purpose of avoiding state taxes on your Social Security benefits. I am, however, suggesting that taxes should be a major component of your retirement planning, so if you're considering relocating after you retire, this is certainly a factor that you should keep in mind.

If you didn't know already, some of your Social Security benefits could be subject to federal income tax, depending on how much you receive, and how much income you have from other sources.

In addition, some states – 13, to be exact – also tax Social Security benefits on the state level. Some, such as Vermont and West Virginia, use the same rules as the IRS. Others, like Colorado and Nebraska, have their own Social Security taxation rules. My colleague Sean Williams wrote an excellent article about the details of each state's Social Security tax structure, so it's worth checking whether you live in (or may move to) a location that could result in a higher tax bill.

Retirement planning includes more than your 401(k)

Social Security planning is one of the most important parts of retirement planning for most Americans, even for those who have substantial retirement savings. Unfortunately, many people -- especially those with lots of money in savings -- don't dedicate nearly enough time to Social Security planning. If you're guilty of this, these suggestions can help you properly incorporate your Social Security benefits into your retirement strategy.

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