Americans miss out on thousands in Social Security benefits by making these Social Security claiming mistakes.
1. Ignorant About Spousal Benefits
When couples coordinate the claiming of their Social Security benefits, they get more. 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, 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 their spousal benefits.
2. Think They 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.
Learn more: How to Stop Social Security Retirement Benefits
3. 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 with inflation each year) then your Social Security benefits will be reduced. People thinking 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.
Learn more: Basics of the Social Security Earnings Limit
4. Underestimate Potential Survivor Benefits
As a married couple, the higher benefit amount 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 on a long-lived spouse.
Learn more: Social Security Survivor Benefits
5. Taxes? What, Taxes?
Yes, your Social Security benefits will be taxed. There is a complicated formula in the tax code that determines how much of your benefits will be taxed. It ranges between 0 and 85%. 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 Know It Protects Against Their Number One Fear
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.