The Social Security program isn’t as secure as it used to be. That’s bad news as the average retirement age rises and people question just how robust their retirement plan is.
With less certainty surrounding the program, mistakes become even costlier. To avoid five of the most common Social Security mistakes, just keep reading.
1. Collecting Social Security Too Early
Don’t turn on Social Security too early. Don’t turn it on just because you turned 62 if you still work. Such a mistake is more common among those who haven’t planned properly for retirement.
Working people between 62 and full retirement age simply shouldn’t collect Social Security. In 2019, for every $2 you made over $17,640 annually, Social Security temporarily withheld $1 in benefits.
Wait until full retirement age to take benefits, when the earnings test no longer applies.
2. Remarrying Without Considering the Consequences
One of the consequences of remarrying is the effect that doing so has on your Social Security benefits.
If you receive an ex-spousal Social Security benefit but remarry, you’ll no longer receive it. If your ex-spouse dies, you’d collect their full benefit amount.
Marrying someone 10 to 20 years younger than you could disqualify you from spousal Social Security benefits for a while.
3. Waiting Until 70 for Spousal Benefits
Just as bad as collecting Social Security too early is doing so too late. Don’t wait until you turn 70 to start taking Social Security. Some people do so because they think they’ll get a higher benefit by deferring.
That’s only partially true. The primary worker reaps a Social Security deferral increase of about 8% per year by waiting from the age of full retirement until 70. Spousal benefits, on the other hand, don’t get deferral credits, so there’s less reason to wait to take them.
Read more here about the right time to apply for Social Security benefits.
4. Not Planning for Your Spouse’s Death
No matter how much you may wish to avoid the topic, your spouse could very well pass away sooner than you think they will.
If they die, you only receive the higher of the two benefits. Later in retirement, it’s not a problem. But if it happens early in retirement, financial difficulties could ensue.
Talk this scenario over with a trusted financial advisor to ensure that you can still meet your financial goals in this event. You may be able to access other assets in this situation, or manage the risk by choosing your pension’s joint life option.
5. Not Accounting for Social Security Taxes
Social Security can become 50% taxable and even 85% taxable at certain thresholds.
That’s determined by your “provisional income,” which amounts to your adjusted gross income (excluding Social Security benefits), plus half of your Social Security benefits and nontaxable interest.
Singles with a provisional income of $25,000 to $34,000 may have up to 50% of their benefits taxed. The same is true of married couples filing jointly with a provisional income of $32,000 to $44,000.
Up to 85% of benefits are taxable for singles with a provisional income above $34,000 and married couples (filing jointly) with such an income above $44,000.
Death, Taxes, and Social Security Mistakes
Unlike death and taxes, Social Security mistakes can be easily avoided. With the right preparation and diligent planning, you can time the process properly to maximize the benefits awaiting you.
