Social Security Mistakes Could Cost You Thousands
The 4 big mistakes?
- Claiming social security benefits at age 62 while still working. Almost half of social security participants claim retirement benefits as soon as they can which is age 62. However, many recipients may not realize that there is an “earnings test” that limits their benefit after $18,240 (for 2020) in wages or self-employment, where the program deducts $1 back for every $2 over the limit. By the time you earn $48,600, you’ve had to give back all the benefits you’ve received. How do they do it? They take it back on your income tax return. There is no earnings test at full retirement age and beyond (age 66-67 depending on birth year).
- Believing the benefit amount on the front page of your report is correct. That number in bold type is only applicable if you continue contributing like you’re currently doing and begin receiving benefits at full retirement age, 66 to 67 depending on your birth year. Many people retire early and don’t contribute for several years before claiming their benefit. That means there is a zero for those years. Since the benefit is based up the highest 35 years and they fall short of that number, their benefit will be recalculated and reduced. That is a shock when they realize how much they aren’t getting that they had counted upon.
- Counting on a spousal benefit that’s no longer available or your spousal benefit self-calculated number is wrong. There used to be an option of taking a spousal benefit and delaying your own benefit to age 70 and letting it grow by 8% a year. If you are born after January 1, 1954, that option is no longer available. Additionally, if you’re waiting until age 70 to take a spousal benefit based upon your spouse’s age 70 benefit, forget it. Your spousal benefit will be based upon your spouse’s age 66-67 benefit and not their increased delayed benefit. This could become another mistake costing thousands in expected income that’s not coming your way.
- As the higher-earning spouse, you believe if you died at age 70 you would have forsaken thousands of dollars in benefits. That’s true as far as it goes for the higher earner, but what about the surviving spouse? He or she would be receiving a reduced inherited benefit if you claimed at an earlier age gave up the opportunity to claim the larger age 70 amount. That amount, if the surviving spouse lives to age 93, becomes over $100,000. Ouch.