Deciding when to claim Social Security benefits is a complex matter that requires careful consideration.
Firstly, the distribution of amounts varies among individuals. And even your own benefit is not guaranteed.
When determining your Social Security retirement benefits, it’s important to consider various factors. One of the main factors is your highest 35 years of earnings.
However, there are other elements that can impact the amount you ultimately receive, such as the age at which you apply for benefits and the benefit amount of your spouse or former spouse. It’s important to be cautious so that you don’t miss out on fully optimizing your benefits.
Social Security: Avoid These Errors
1. Early Claim of Social Security Benefits
It is recommended to delay filing for Social Security retirement benefits even though you are eligible to start receiving them at the age of 62.
By waiting until you reach your full retirement age, which is 67 for individuals born in 1960 or later, you can receive the full retirement benefit you are eligible for.
On the other hand, choosing to file a claim sooner would lead to a decrease in that amount. In addition, if you choose to delay your claim beyond the full retirement age, you will receive an 8% increase for each year of postponement in collecting, up to the age of 70.
Chris Orestis, president of Retirement Genius, recounted an instance where a couple claimed Social Security benefits at age 62, locking in a monthly benefit of $2,209 each, totaling $4,418.
However, amidst the COVID crisis and rising inflation, they realized this amount wasn’t sufficient.
Unfortunately, once benefits are claimed, they remain fixed for life, with only cost-of-living adjustments.
Had they waited until their full retirement age of 67, they would have received $3,882 monthly each, totaling $7,764, subject to COLA increases.
The difference between their early claim and waiting until full retirement age amounts to $3,346 per month.
2. Unclaimed Spousal/Survivors Benefits
When planning for Social Security, consider maximizing your benefits through spousal benefits, especially after divorce or death.
Did you know that factors other than work history can affect Social Security retirement benefits? So true! You may receive a higher benefit based on your spouse’s earnings.
Yet, understanding and following these rules is difficult.
Certain criteria must be met to receive a higher spousal benefit of up to 50% of your former spouse’s benefit. Being married for 10 years and not remarrying are requirements.
Survivors of spouse deaths can also apply for benefits.
Depending on age, the claimant may receive the full Social Security benefit of their deceased partner.
3. Neglecting Federal Tax Obligations
One common oversight that can have financial consequences or affect your way of life is neglecting to consider income taxes on Social Security benefits.
According to the Social Security Administration, a significant portion of Americans, approximately 40%, are required to pay federal income taxes on a portion of their Social Security benefits.
Your income will determine the taxable amount. If you choose to work while receiving Social Security benefits, it’s important to note that a portion of your earned income may be subject to taxes.