Nearly 97% of American adults ages 60 and up receive Social Security benefits at some point, according to the SSA. For many of these people, Social Security offers more financial stability during retirement in the form of additional income.
As important as these benefits are for current (and future) retirees and their families, many people have limited knowledge about Social Security and how to maximize their benefits. This can lead to an array of financial repercussions. In particular, it can reduce their future financial stability, which can make it harder for them to retire — and stay retired. It can also prevent them from living their best life during their retirement years.
The good news is that you can maximize your benefits and avoid many common Social Security mistakes people make simply by knowing about them ahead of time. According to our experts, here are the most common Social Security missteps, how they can affect your finances, and what you can do instead.
Withdrawing Too Early
Although you can start withdrawing from Social Security at the age of 62, your benefits amount will be smaller than if you were to wait until the full retirement age of 66 or 67 (depending on when you were born). If you delay your benefits until you’re 70 years old, you can get an even higher amount.
“The biggest mistake that I see people make is beginning to take Social Security at a younger age (as early as 62) while still working,” said Kendall Meade, CFP at SoFi. “If you are under [the] full retirement age, $1 from your benefit payments gets deducted for every $2 you earn above the annual limit ($21,240 for 2023). This is in addition to you already getting a reduced amount for filing early.”
Of course, it’s important to consider your longevity when making the decision to retire early. If, for example, you have an existing medical condition and expect to have a shorter life expectancy, you may want to receive benefits sooner. But if you anticipate a longer retirement, it could be worth delaying your benefits by a few years.
Not Taking Advantage of Widower or Spousal Benefits
“I see far too many cases where new clients qualify for spousal or survivor benefits (sometimes from past marriages) and need to be made aware,” said Bill Hines, AFC, president at Emancipare Investment Advisors LLC. “Social Security rules can be complex, but free and inexpensive tools and advice-only advisors for guidance do exist.”
If, for example, you were married to someone who was eligible for Social Security benefits, you may also qualify for benefits under certain circumstances. As an ex-spouse, you’ll need to have been married to that individual for at least 10 years to be eligible. You’ll also need to be at least 62 years old and never remarried. If you’re entitled to your own benefits, the amount must be lower than your ex-spouse’s, too.
As a widower or dependent of someone who was eligible but passed away, you may also be eligible for benefits. “Many divorced or widowed individuals do not know how to take advantage of their spousal or widower benefits,” said Steve Sexton, retirement planning expert at Sexton Advisory Group. “It is also important to understand that getting remarried can adjust your divorced benefits. Also know that if you get remarried with widower benefits, it will not affect your Social Security benefits.”
Faron Daugs, CFP and founder and CEO of Harrison Wallace Financial Group, also weighed in. “Fully understand how spousal benefits work and implement a strategy to maximize those provisions. Review how the survivor benefit works when either you or your spouse pass away.”
Relying Solely on Social Security
Some people think their Social Security benefits will be enough to get them through their retirement years, but this isn’t always the case. The average monthly benefit amount in June 2023 was $1,701.62. Depending on your monthly expenses, this may not be enough to cover everything.
“Social Security is one of few income sources that adjust with inflation, meaning it will not go down when the market is volatile and is guaranteed,” said Sexton. However, while Social Security gets a cost-of-living adjustment, it’s not always enough to keep up with inflation, according to Daugs.
Along with this, Social Security is meant as a supplement in your retirement years. “By not properly planning for Social Security, a person may not be saving enough in other plans to help supplement their income in retirement,” said Daugs. “Social Security was never meant to be a retirement plan. It was only meant to be a supplement.”
“Retirement is all about getting it right the first time,” said Brian Kuhn CFP, CLU, senior vice president at Wealth Enhancement Group. “You don’t want to do so and realize you need to go back to work. So, planning to assure your sources of income like Social Security and pensions, and part-time work and investment income, add up to enough is important.”
Working While Receiving Benefits
“Many people retire early and claim their Social Security benefits while consulting or working a part-time job to supplement their retirement income,” said Sexton. “If that supplemental W-2 or self-employed income exceeds $21,240, for every $2 dollars that exceeds this limit, they will need to pay $1 back to Social Security. If you are within one year of your full retirement age, you can make $56,520. For every $3 you make over the $56,520, you pay back $1 to Social Security.”
“I have seen people file for Social Security at 62 and then continue working, not realizing that there is a limit to earned income prior to full retirement age,” added Devin Carroll, a financial planner, owner and lead advisor at Carroll Advisory Group. “In the most extreme cases, it can result in having to repay thousands of dollars in benefits that were received while working.”
Not Withholding Taxes
“Another mistake is not withholding taxes from benefits,” said Kuhn. “Social Security is uniquely and favorably taxed, but at least part of it is still considered taxable income. So, withholding avoids surprises.”
Not Calculating Their Full Benefit Amount
“With many people deciding to retire early, they need to address the impact that will have on their overall Social Security estimate that they have access to at ssa.gov,” said Daugs. “The estimated benefit assumes that you will continue to work through your full retirement age and therefore, if you retire early, this could have an impact on what that overall payment would be.”
Calculate your benefit amount and see if that fits into your long-term plans and needs. If it doesn’t, you may need to work longer or make some adjustments.
Not Having a Long-Term Plan
“The most common mistakes people make when it comes to Social Security are people not understanding their options and not having a strategy in place at all,” said Hines. Before deciding to withdraw from Social Security, look at the bigger picture. Consider your current and anticipated financial situation, your health and expected longevity, your lifestyle preferences, and your retirement goals.
“Be objective and honest about your mortality to mitigate longevity risk,” added Hines. “Find and use the free and inexpensive tools on the internet (the good ones) and look at alternative strategies to get your Social Security strategy dialed in. Hire an objective, unbiased advice-only expert to guide you or put a second set of eyes on your conclusions. These diligent approaches will often pay for themselves many times over.”
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