My Comments: I’ve yet to find anyone who fully understands Social Security. Especially among working class Americans whose future standard of living will depend to some degree on the benefits they receive from Social Security. And I readily admit to being one of those people.
Sometimes, it’s just helpful to understand the mistakes to be made before your make them.
By Dana Anspach | Updated August 30, 2016
You could miss out on thousands in Social Security benefits by making one, or several, of the following six Social Security claiming mistakes.
1. Don’t Know About the Earnings Limit
If you claim benefits before you reach your full retirement age (which varies by year of birth) and you earn in excess of the earnings limit (which is adjusted upward along with inflation each year) then your Social Security benefits will be reduced.
People who think they can be fully employed and collect their Social Security benefits are often caught off guard when the Social Security office tells them they made too much money and they have to repay some of the benefits. Once you reach full retirement age, you can earn as much as you’d like with no reduction in benefits.
2. Think You Can Stop and Start
You can not turn off your Social Security benefits easily. If you change your mind about claiming within 12 months of filing, you can repay all your benefits and things will reset as if you had never claimed. But you cannot simply stop your benefits and then choose to start again later. Many people take Social Security benefits early, thinking if they find a job they can stop benefits for awhile, and start again later. Nope, you can’t do it. Best to develop a thoughtful plan about when to start benefits.
3. Unaware of Spousal Benefits
As a couple, if you coordinate the claiming of your Social Security benefits, you can often get more than if you each make your own independent decision.
Most people look at when they should start their own benefits, but they don’t realize that depending on the differential in age and benefit amounts between them and their spouse, and if one of them were born January 1, 1954 or earlier, they might be able to claim a spousal benefit, while letting their own benefit continue to grow or vice-versa.
Married couples miss out on thousands by not using this type of spousal benefit.
4. Underestimate Potential Survivor Benefits
As a married couple, whichever of you receives the higher benefit amount – that is the amount that will continue for the longest spouse to live. This means it is important to maximize the benefit of the highest earner, as it can provide a powerful form of life insurance: inflation-adjusted income for as long as a surviving spouse needs it. Don’t claim early without considering the impact that may have on a long-lived spouse.
5. Taxes? What, Taxes?
Yes, your Social Security benefits will be taxed. There is a formula in the tax code that determines how much of your benefits will be taxed; somewhere between 0 and 85% of benefits received could be counted as taxable income. When you carefully determine which accounts to draw retirement income from in which order, and coordinate this decision with when you take Social Security, you can reduce the amount of taxes you pay over your retirement years. Unfortunately, many do not take the time to do this kind of withdrawal planning, and so they pay more tax than they would otherwise have to.
6. Don’t Consider How it Protects You From Running Out
In survey after survey, upcoming and existing retirees state their number one fear is running out of money in retirement.
A smart Social Security claiming strategy can help protect against this outcome. Yet people claim with no analysis. Social Security benefits will provide over $1 million in benefits for many couples. Would you make a decision about $1 million with no analysis?
You can use a Social Security calculator, to help you avoid costly Social Security mistakes. It’s great to check out the calculators, and I recommend you play around with them, but coordinating when and how you take retirement withdrawals in a tax-efficient manner requires a great deal of expertise. See What a Good Retirement Planner Will Do For Me, and consider finding one before you claim.