If retirement is approaching quickly, you probably have a number of big decisions to make. One may be how to allocate your investments to minimize risk and take advantage of growth opportunities. Another could be determining how you will spend your time in retirement. And one big part of your planning most likely involves determining when and how to file for Social Security.
Filing and collecting your Social Security benefits may seem like a straightforward process. If you don’t plan ahead, however, you may end up with less cash in retirement. Below are three common mistakes people make when filing and collecting their Social Security benefits:
Filing at the wrong time.
The benefits you receive from Social Security are based on a few different factors. One of those factors is when you decide to file. The age at which you are eligible to start receiving full Social Security is called your full retirement age (FRA). Most people reach their FRA sometime between their 66th and 67th birthdays. Filing at your FRA means you won’t see any reduction to the benefits you receive.1
You can, however, file as early as age 62. Filing early has some drawbacks, though. The downside to filing early is a reduction in payments. For instance, if your FRA is 67 and you file at age 62, your benefit could be reduced as much as 35 percent. If, however, you wait until you’re 66 with an FRA of 67, your payment would be reduced only 6.7 percent.1
Reductions are permanent, so timing when you file is extremely important. Too early, and your retirement could be impacted for years to come. Too late, and you may run the risk of spending too much of your savings.
Not planning for taxes.
Retirement doesn’t exempt you from paying taxes. Pension benefits, retirement account distributions, interest, dividends, investment gains and even your Social Security benefits are all things that could potentially be taxed. What’s more, the portion of your benefits that is taxable is based on your gross income.
It is important that you project your income during retirement. This can help you determine and minimize your tax liabilities.
Missing out on spousal opportunities.
Married couples have the option of taking a benefit based on the record of the higher-earning spouse. If you’re married, Social Security will automatically calculate whether your benefit or your spousal benefit is higher. You will then receive the greater of the two.
Even if you are divorced, you still may be able to claim a spousal benefit based on a higher-earning partner. Doing so will not impact his or her benefit, and you can file for the spousal benefit even if they haven’t filed. As long as your marriage lasted 10 years or longer, the only requirements are that you’re not married, that you’re 62 or older, and that your spouse is eligible for Social Security benefits.2 There are a few exceptions though. Be sure to talk to your financial advisor to discuss in-depth the process and options available to you and your unique situation.
Ready to learn more about retirement planning? Contact us at Gallagher Financial Group. We can help you evaluate your objectives and needs, and then develop a Social Security strategy. Let’s connect soon and start the conversation.
This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
The material is not intended to be legal or tax advice. The insurance agent can provide information, but not advice related to social security benefits. Clients should seek guidance from the Social Security Administration regarding their particular situation. The insurance agent may be able to identify potential retirement income gaps and may introduce insurance products, such as an annuity, as a potential solution. Social Security benefit payout rates can and will change at the sole discretion of the Social Security Administration. For more information, please consult a local Social Security Administration office, or visit www.ssa.gov
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