At some point in your life, likely during your retirement years, you will want to tap into your Social Security benefits. But to maximize these benefits, you’ll need to avoid some key mistakes, including the following:
- Mistake 1: Thinking that Social Security will provide for most of your needs in retirement – Social Security will provide about a third of pre-retirement income, on average, according to the Social Security Administration.1 Consequently, you’ll still need other sources of retirement income. So, throughout your working years, contribute as much as you can to your traditional or Roth IRA and your 401(k) or other employer-sponsored retirement plan. Combining these income sources with Social Security can help improve your chances of enjoying the retirement lifestyle you’ve envisioned.
- Mistake 2: Not checking your annual earnings statements – Every year, the Social Security Administration shares your earnings statement summarizing your taxable wages and estimating the benefits you will be able to collect at your “full” retirement age, which will probably be between 66 and 67. (If you’re 60 or older, the statement should come in the mail; otherwise, you can find it on Social Security’s website.) It’s important to check your earnings statement for errors, because a mistake, such as a lower annual wage than what you really earned, could reduce your benefits.
- Mistake 3: Taking Social Security earlier than necessary – You can file for Social Security benefits as early as 62 – and, in fact, more people start collecting at this age than at any other.2 Many of them truly need the money, of course, but many others don’t – and if they don’t, they could be making a costly error by taking their benefits too soon. In fact, you could get 25% to 30% more each year if you wait until your full retirement age. You can receive even more if you wait until 70, at which point your benefits will “max out.” However, there’s no “right” time to file for everyone – it depends on your situation, including factors such as your life expectancy, employment, financial need and spousal considerations.
- Mistake 4: Claiming Social Security without regard to spouse’s benefits – How much you receive in Social Security can affect your spouse’s benefits while you are alive (spousal benefits) and after you’ve passed away (survivor’s benefits). Your spouse could receive up to half of your retirement benefit, offset by his or her own benefit, so the longer you work before collecting Social Security, the greater the potential spousal benefits. For survivor benefits, your spouse would receive 100% of your benefit or his or her own, whichever is larger, so when you file affects how much your spouse would receive if you pass away early. In any case, you’ll want to consult with the Social Security Administration about how much your spouse can receive, as his or her own benefits can also affect your decision-making.
- Mistake 5: Collecting Social Security early while still employed – If you start receiving Social Security before your full retirement age, you can only earn up to $18,240 in 2020 and still get your full benefits. Once you earn more than this, Social Security deducts $1 from your benefits for every $2 you earn. But during the year you reach full retirement age, you can earn up to $48,600 without your benefits being withheld. If you exceed this amount, $1 will be deducted for every $3 you earn during the months before you attain your full retirement age. (Social Security will increase your benefits when you do reach full retirement age to adjust for the previous work-related withholdings.) So, if you plan on receiving Social Security while still working, it may not make sense to file if most of your benefits will be withheld. Once you reach full retirement age, you can earn any amount without losing your monthly benefits, although your benefits could still be taxed.
As you can see, you’ll have much to consider when planning for, and receiving, your Social Security benefits. And you’ll want to be sure your decisions are right for you, since they may well be irrevocable. For help in making these choices, and to determine how Social Security benefits may fit into your overall financial picture, contact an Edward Jones financial advisor.