Get More Retirement Income: Avoid These 7 Social Security Mistakes
Social Security may be an important part of your retirement future. Itâs crucial to avoid common mistakes that can cost you money during retirement.
Consider these strategies to avoid common mistakes:
- Avoid claiming benefits too early. If you have other income coming in and can afford to wait, then you may want delay claiming your benefits. Your benefits grow every year you wait to claim them.
- By claiming benefits early, you reduce how much money you will receive for the rest of your retirement.
- However, itâs important to note that sometimes claiming early benefits can be more advantageous than waiting. For example, if youâre expecting a shorter lifespan, you might want to start receiving your Social Security earnings early. Also, if you have children under 18 years old when youâre 62, you may get more by claiming early.
- Itâs always good to check your estimated benefits on the calculators at the Social Security website at https://www.socialsecurity.gov/planners/benefitcalculators.html.
- Consider the tax implications. Are you aware that Social Security benefits can be taxed?
- Itâs a common mistake to forget the tax implications of Social Security benefits. Experts call this issue the Social Security Tax Torpedo. Your benefits can be taxed at a high rate, and it can last for your entire retirement.
- Your total income affects the tax rate youâll be subject to.
- Consider the total years youâve worked. Social Security looks at 35 years of earnings to determine benefits. Have you worked for 35 years? They use the income from your highest-earning 35 years, indexed for inflation, to figure out what your average yearly income was.
- Generally, the longer your record, the higher your benefits.
- Check your records each year. As you work on your taxes, you may want to use this time as a reminder to check your Social Security records.
- Itâs possible for your records to have missing information or errors. Social Security gives you 3 years to fix an error on the record. After this time, it may be impossible to fix.
- Consider your partnerâs income. Have you considered your partnerâs retirement and Social Security benefits? If your partner earns significantly more than you do, you might be able to collect higher benefits based on your partnerâs earnings.
- Consider the maximum benefit. Each year, Social Security has a cap on the amount of income that you pay Social Security taxes on. If you earn a high income, some of your income-producing years might exceed the limit, and the excess income wonât be used in figuring your average income amount. You can find these limits on the official website.
- Pay attention to the COLA. The COLA refers to the cost-of-living adjustment.
- The cost-of-living adjustment is essentially inflation protection for your Social Security benefits. Itâs created to adjust your earnings, so your benefits keep up with the cost of groceries, gas, rent, and other services.
- Retirees can make the mistake of assuming that the cost-of-living adjustment will be enough in future years. Based on the current trends, experts warn retirees to be careful and not make assumptions. The COLA is linked to the federal consumer price index amounts.
- The cost-of-living adjustment tends to be very small, so retirees shouldnât expect this to change in the future.
Social Security can be an essential part of your retirement plans. Use these strategies to avoid mistakes that can cost you money in your retirement. A little planning now can pay off big in your future.
Published at Fri, 25 Sep 2020 00:08:00 +0000