Don’t Make These 3 Social Security Mistakes
If you’re approaching retirement, you may be thinking about how you will generate income to fund your lifestyle after you stop working. You may have retirement savings from which you can take distributions. You also may be fortunate enough to have an employer pension.
However, if you’re like 97 percent of older Americans, you will likely depend on Social Security benefits for some portion of your income.1 While filing for Social Security is a fairly simple process, there are a few decisions you’ll need to make. For instance, the timing of your filing can have a big impact on your benefit amount. Tax planning also plays an important role in Social Security strategy.
Unfortunately, too many retirees don’t spend enough time planning their Social Security filing or their retirement budget. As a result, they don’t maximize their income after they stop working, and they may even find themselves short on funds in their later years.
Below are a few mistakes that retirees commonly make with regard to Social Security. If you’re approaching retirement, watch out for these costly planning errors:
Mistake #1: Filing Too Early
It’s understandable that you may want to file for Social Security benefits as soon as you are eligible. After all, you’ve been paying into the system for decades. It’s only fair that you seize the opportunity to become a Social Security recipient as soon as possible, right?
However, by delaying your filing, you can increase your eventual benefit. You can file as early as age 62. To get a full benefit, however, you have to wait until your full retirement age (FRA) to file. Most people reach their FRA between their 66th and 67th birthdays. If you file before your FRA, your benefit could be permanently reduced as much as 35 percent.2
On the other hand, you can increase your benefit by delaying your filing past your FRA. You can delay filing up to age 70. If you do so, you will receive an 8 percent increase for each year past your FRA that you don’t file.3 Waiting can be a great way to increase your retirement income.
Mistake #2: Not Planning for Taxes
Just because you stop working doesn’t mean you stop paying taxes. Much of your retirement income could be taxable, including income from qualified retirement plans, pensions, rental properties, interest-bearing accounts and more. And, yes, Social Security benefits may be taxable as well.
The amount of taxation you may face on your Social Security benefits depends on how much other taxable income you have. The more taxable income you have from other sources, the higher the percentage of taxable Social Security benefits.
You may not be able to avoid taxes, but you can plan for them. Too many retirees fail to plan for taxes and are then surprised to have less income than they’d anticipated. Try to estimate your tax exposure and include that expense in your retirement budget.
This quick video explains how to calculate how much of your Social Security benefits will be taxed: http://eaglefinancialsolutions.com/contact/vom-social-security-taxation-explained/
Mistake #3: Not Making Use of Spousal Benefits for Divorced Couples
You may have been the lesser-earning spouse during your marriage, but that doesn’t mean you have to settle for a smaller Social Security benefit. In fact, Social Security allows divorced individuals to still claim a spousal benefit off of their ex-spouse’s earnings, even if the couple are no longer married.
To qualify, your marriage had to have lasted at least 10 years; you must be at least 62; your ex-spouse must be eligible for benefits; and you must be currently unmarried. If you meet those criteria, and if you would benefit from a spousal payment, you can go that route instead of taking your own smaller payment.
Are you unsure of when and how to file for your Social Security benefit? Let’s talk about it! Contact us today for a FREE Initial Strategy Session, and we can help you determine the appropriate strategy for your situation, and avoid making costly mistakes.
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The material is not intended to be legal or tax advice. Clients should seek guidance from the Social Security Administration regarding their particular situation. Social Security benefit payout rates can and will change at the sole discretion of the Social Security Administration. For more information, please consult a local Social Security Administration office, or visit www.ssa.gov