Top 10 Mistakes to Avoid When Applying for Social Security Benefits


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Social Security provides crucial economic security for the older generation, as AARP research shows it’s a primary source of income for many retirees. With an estimated 10,000 Baby Boomers reaching retirement age each day (yes, you read that right), there’s perhaps more interest than ever in Social Security.

For those getting ready to claim benefits, do your research. After all, a mistake when applying for Social Security could cost you thousands of dollars per year.

So, avoid these 10 mistakes–and you’ll be in a much better position to maximize benefits. And that means you’ll get all the money you deserve.

 

1. Not paying attention to your full retirement age

Full retirement age is when you can get your full monthly benefit without a reduction.

For instance, if you were born in 1960, the full retirement age is 67. However, you can still begin receiving benefits at 62.

Why is this important?

Well, it’s because your monthly benefit amount can vary a lot based on when you begin taking Social Security (SS). Using the example of those born in 1960, here’s the difference in monthly income if you begin taking benefits at 62 versus 67 (assuming a $1,000 retirement benefit):

  • 62 years old: $700 per month
  • 67 years old: $1,000 per month

That’s a difference of 30%!

Note: This isn’t telling you to wait to take your benefits. Just be aware of your full retirement age and how the monthly benefit is reduced if you take it out before that age.

 

2. Not knowing about delayed retirement credits

You don’t have to take SS benefits at full retirement age. Presently, you can earn delayed retirement benefits until your 70.

As AARP notes, "delayed retirement credits are the financial reward Social Security gives you for putting off claiming your retirement benefit." Social Security currently increases your benefit by 8% for each year you wait until you’re 70. Those increases stop at 70. Absolutely begin taking benefits then.

So if you wait until you’re 70, you’re most likely going to get several hundred more dollars per month in benefits. If you’re healthy and still enjoying your work, it may make sense to wait. But do consider your entire situation first.

 
 
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3. Making decisions in a vacuum

Just basing your decision off the numbers doesn’t factor in the whole situation. As experts remind us, by not taking checks at the earliest possible date (currently 62 years old), you’re delaying your benefits and therefore not getting SS money during that time.

Ultimately, when you should apply for Social Security benefits depends on your personal circumstance. For instance, bigger isn’t necessarily better if you suddenly have concerns with health or job security. In such cases, taking the money as early as possible may be most suitable.

So, make a decision that’s right for you and give you the lifestyle you want and financial security you need.

 

4. Not taking into account all scenarios

There are a plethora of financial and personal situations to consider. For example, consider the following:

  • Your career: Are you set up to earn substantially more in your 60s? Then it may be wise to continue working and delay benefits.
  • Health: Do you have a health concern? Then it may be best to start taking benefits so you don’t stress your body working.
  • Family situation: Does one spouse work more than the other? Then remember to apply for spousal benefits (more on this coming up!). Do you depend on a spouse or child financially? Then remember the survivor’s benefit in case the worst happens.
  • Financial situation: Is your wealth tied to stocks? Then think about where you would be if a market crash occurs. To offset risk, you perhaps could consider taking Social Security early for consistent income or de-risking your portfolio to protect your money.

Thinking about all the potential scenarios allows to make a decision that’s custom-fitted to your situation.

 

5. Not considering other retirement savings

Two-thirds of Americans believe they’ll outlive their retirement savings. This makes the decision of when to take Social Security all the more crucial.

Crunch the numbers and see how much income you can draw from your 401K, IRA, retirement annuity, and other accounts. Factor in other savings, like your health savings account (HSA), as well as any assets you have that you may sell, like a house or stocks.

Then consider how much you need from Social Security to meet your retirement income needs. Make a decision of when to apply for Social Security based on those numbers. Do what will set you up for long-term financial security.

 

6. Not being aware of spousal benefits

Even if you’ve never worked under Social Security, you may be able to receive your spouse’s benefits. Spousal benefits allow you to receive up to 50% of the worker’s primary insurance account.

For married couples that both work, the spousal benefit still applies. As the Social Security Administration (SSA) states, if your spouse’s benefit is higher than yours, they’ll "pay a combination of benefits equaling the higher spouse benefit."

Even divorcees can claim spousal benefits. You can’t be currently married and your benefit must be less than your ex-spouse’s. The marriage must have lasted 10 years or longer and you must be 62 or older to begin claiming.

 
 
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7. Waiting too long to take spousal benefits

The Social Security Administration lets you delay benefits beyond full retirement age. You can then earn delayed retirement credits until you’re 70. Beyond 70, the benefit increase stops.

Now, if you’re healthy and working, it may seem like a good idea to delay the benefit for you and your spouse until you’re both 70 years old. Stop right there!

That’s alright for yourself. But delayed retirement credits don’t apply to spousal benefits.

So, once you hit full retirement age, your spouse should definitely claim Social Security spousal benefits, as there will be no more increases. Waiting is just lost money.

 

8. Disregarding earnings limits

You can work while receiving Social Security benefits. But before you reach full retirement age, there are limits to how much you can earn before your benefits are reduced.

For example, in 2019, the annual earnings limit is $17,640 if you’re not at full retirement age. $1 in Social Security benefits is deducted for every $2 you earn above the limit.

If you’re at full retirement age, you can keep all your benefits, no matter how much you earn.

 

9. Using strategies that don’t apply anymore

The Social Security system continuously changes. Some of the strategies you read about may be outdated, and using them could cause unnecessary issues.

A great example of this is the file-and-suspend strategy. As USA Today notes, this strategy allowed a worker to file for Social Security and then immediately suspend the benefits. This enabled the worker to earn delayed retirement credits. Having filed, the spouse also became eligible to claim spousal benefits. Seeing this lucrative loophole, the government eliminated the option in 2016.

So, the lesson is this: Pay attention to new legislation and read updated resources before applying for Social Security.

 

10. Not checking your taxable earnings record

The Social Security Administration (SSA) uses your top 35 years of earnings to calculate your benefit amount. Though errors on earnings records aren’t widespread, they can happen.

As reported by CNN Money, the SSA had $71 billion in wages that couldn’t be matched to taxable earnings records in 2012. Only half of that money was eventually matched correctly.

Inaccuracies in your earnings record could reduce your benefits. Don’t leave money on the table. Check! It’s better to be safe than sorry.

 

Final Thoughts

To maximize your benefits, stay updated on any legislative changes and always factor in your personal situation. Additionally, speak with a financial adviser if you need help during the application process.

Knowing what NOT to do is a key first step in ensuring you get the economic security you need and deserve from Social Security. Continue to do your research and plan ahead. This way, you’re ready to adapt intelligently and make the best possible decision when you apply for Social Security benefits.


 

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