With so many years of hard work put towards accumulating your Social Security benefits, it is important to be intentional about fully utilizing and optimizing these benefits prior to retirement.
With so many years of hard work put towards accumulating your Social Security benefits, it is important to be intentional about fully utilizing and optimizing these benefits prior to retirement. Below are 4 common mistakes people make when working to maximize their Social Security benefits:
Claiming too early
When you reach your full retirement age (FRA), your full monthly Social Security benefit becomes entitled to you. You can claim social security as early as age 62; however, many people claim their Social Security benefits early. While this isn’t always a bad thing, it can result in some setbacks. Claiming too early can permanently reduce your monthly payout. Depending on your birth year, you could see a reduction of anywhere from 25% to 30% when you take your payout as soon as possible.
Waiting too long before claiming
Your benefit amount will not increase if you delay claiming past your seventieth (70) birthday. Delayed retirement credits boost benefits by 8% annually for people who haven’t claimed Social Security past full retirement age. Any retirement credits stop accruing at age 70, regardless of your filing status.
Not applying for widow’s or widower’s benefits
Survivor’s benefits can financially help survivors of workers and retirees. Eligible survivors can file for benefits as soon as they turn 60 years old if their deceased spouse or former spouse worked long enough under Social Security.
For widows and widowers, benefits can be received:
- At age 60 or older.
- At age 50 or older if disabled.
- At any age if you take care of a child of the deceased who is younger than age 16 or disabled.
For divorced widows and widowers, benefits can be received:
- At age 60 or older if the marriage to the deceased lasted at least 10 years.
- At age 50 or older if disabled and the marriage to the deceased lasted at least 10 years.
- At any age if they take care of a child of the deceased who is younger than age 16 or disabled.
For more information about Social Security Survivor Benefits, visit Social Security’s website.
Not taking taxes into consideration
For many Americans, Social Security is taxable. Those receiving Social Security benefits often pay taxes on up to half or even 85% of money they receive. This is caused by the combination of Social Security and other income that puts them over the low threshold for taxes to begin. Although paying taxes on Social Security can cost you, there are ways to reduce the amount you pay, such as donating your required minimum distribution to a non-profit, taking 401(k) withdrawals before claiming Social Security, or pivoting to a tax-efficient investment portfolio. It is in your best interest to speak with a tax professional about the money saving strategies that will work best for your specific situation.
Central Investment Advisors and LPL Financial are not affiliated with or endorsed by the U.S. Social Security Administration or any government agency, and do not specialize in Social Security issues. The Social Security Administration provides free Social Security forms, publications, and assistance. For questions about your Social Security benefits, please contact your local Social Security Office.
This material has been provided for general informational purposes only and is not intended to be a substitute for specific individualized tax or legal advice. Neither LPL Financial, nor its registered representatives, offer tax or legal advice. We recommend you consult with your own tax or legal counsel for advice regarding your specific situation.