A few weeks ago, we discussed the fundamental characteristics of Social Security, and we learned that it is a crucial retirement asset for most people. Despite its importance, Social Security candidates tend to make the same filing mistakes time and again. Today we will talk about a few common errors that individuals make during the filing process and how to make sure you get the most out of this retirement asset.
Expecting the Local Social Security Office to Give Advice
What this means: One of the biggest misconceptions around Social Security is that the Social Security office will help you develop the best filing strategy for your situation. However, the employees at your local Social Security office cannot help you coordinate filing decisions with the rest of your financial life. These workers do not have a complete picture of your financial portfolio, and the law prohibits them from giving advice on your filing options.
Consider this: Seek the help of a trusted financial advisor. With a complete picture of your financial portfolio in mind, he or she can guide you through the filing process to make the best elections for your situation. No two retirement portfolios are exactly alike, and depending on what your balance sheet looks like, you may or not need to file for Social Security on your eligibility date.
Retiring Early and Thinking Your Only Choice Is to Take Social Security
What this means: If you do not have any other assets, Social Security might be your only option for retirement income, but if you do have other retirement assets, you need to evaluate whether starting your benefit is the best course of action.
Consider this: Evaluate your retirement portfolio by considering how long you might be able to supply income without Social Security. For every year you delay your Social Security Benefit past your full retirement age, you earn Delayed Retirement Credits at the rate of 8% per year until age 70. For a person at full retirement age (66), these credits can increase Social Security Benefits by 32%.
Filing for Benefits Prior to Full Retirement Age
What this means: When you file for benefits prior to retirement age, you lock in lowered benefits for life. This can cause as much as a 25% reduction in monthly benefits and can have a profound effect on survivor benefits later. Basically, this is a sure way to miss out on the full benefit amount that you are entitled to for your lifetime.
Consider this: Develop a plan on how you might avoid starting this benefit if you have not yet reached Full Retirement Age. If you are thinking about retiring, begin to evaluate what other sources of income are available to you and decide if you might be able to use those alternative resources until you reach the Full Retirement Age.
Failure to Take Advantage of the Spousal Benefit
What this means: Married couples in which at least one individual was born prior to January 1, 1954 can file for a separate benefit in addition to their own benefit called a Spousal Benefit. This allows an individual to claim a benefit from their spouse while simultaneously allowing their personal benefit to continue growing from delayed retirement. This same spousal benefit is available for divorced couples who were married for at least 10 years and did not remarry prior to age 60. Routinely, couples leave between $20,000 and $30,000 on the table in unclaimed Spousal Benefits because they are either unfamiliar with the benefit or do not know how to file for it.
Consider this: If you or your spouse were born before 1954, make sure you inquire about the Spousal Benefit when you file for Social Security. People are living longer today, so you need to anticipate that you or your spouse will live into your 90’s. When you consider whether to take Social Security early or delay it, the lifetime benefit numbers left on the table can easily be between $100,000 and $250,000, if you have not applied the Spousal Benefit.
The Bottom Line
Social Security can be a complicated topic, but it provides a significant and reliable source of retirement income. Most importantly, you only get one chance to get it right, so it is important to understand your options and make sure your filing decisions compliment the rest of your financial portfolio. After all, Social Security is funded with your tax dollars, so doesn’t it make sense to get the best benefit possible?