Social Security is a critical source of income for millions of retirees in the United States. It’s a program designed to provide a safety net in your golden years, offering a monthly benefit based on your lifetime earnings.
However, while Social Security is a reliable system, there are ways you can unknowingly jeopardize the full amount you’re entitled to receive.
Here are some potential pitfalls to avoid to ensure you maximize your Social Security benefits.
Failing to Estimate Your Benefit
People do not estimate their Social Security benefits before retirement. This is one of the blunders people tend to make. This imperative step helps people plan their retirement income more effectively. You can’t make informed decisions about when to claim benefits without clearly understanding your expected payout. Moreover, you must determine how much you’ll need to save from other sources.
The Social Security Administration’s (SSA) website offers a retirement benefits calculator tool. Simply create an account and access your estimated benefit amount. This tool also allows you to verify your earnings history, ensuring the SSA has accurate records for calculating your benefit.
Not factoring in a longer retirement
People are living longer than ever before. When deciding when to claim Social Security, it’s crucial to consider this reality. Claiming too early can leave you with a lower monthly income for a longer period, potentially straining your other retirement resources.
If you have a family history of longevity, delaying your claim might be a wise decision to secure a higher benefit for your later years. Filing too early for benefits can significantly reduce your retirement income and strain your savings, such as your 401(k) plan. It is a workplace savings plan for retirement with tax advantages.
Not Working Long Enough
The SSA calculates your Social Security benefit based on your highest 35 years of earnings. If you haven’t worked for 35 years, your benefit calculation will include zeros for each missing year, significantly reducing your overall payout.
Relying Solely on SSA advice
While Social Security Administration (SSA) representatives can explain program details and answer basic questions, they are not financial advisors. They cannot provide personalized advice on the best claiming strategy for your unique situation.
Consider seeking professional guidance from financial advisors. Several software programs like Social Security Retirement Estimator and U.S. News Retirement Calculator are also available to help you calculate your potential benefits at different claiming ages.
These tools can be a helpful starting point. However, remember, they can’t replace the personalized advice of a financial advisor.
Claiming Early
Many people worry about Social Security running out of money and rush to claim benefits as soon as they turn 62. However, this can be a costly mistake. Claiming early means permanently reducing your monthly benefit by 30% compared to what you’d receive at your full retirement age. There’s a significant advantage to waiting.
Social Security benefits automatically increase each year until you reach your full retirement age (currently 67). These increases can be substantial, reaching 6% annually. The benefit bumps continue even after you reach full retirement age, with an additional 8% increase per year up to age 70.
Failing to File on Time
There are specific deadlines associated with claiming Social Security benefits. Missing these deadlines can result in losing benefits or incurring penalties.
You can file for retirement benefits as early as 62, however, it’s crucial to do so before your Full Retirement Age (FRA) to avoid a gap in payments. Social Security disability benefits are available for those who become disabled before retirement age. There are strict time limits for filing a disability claim, so don’t delay if you believe you qualify.
Not Understanding the Tax Implications
Social Security provides a financial safety net in retirement. However, tax implications can surprise some. Depending on your filing status, a portion of your benefits might be taxable. Here’s the key: If you file single and your total income surpasses $25,000 annually, or if you file jointly with a combined income exceeding $32,000, be prepared for potential taxes on your Social Security. Remember, this is a general guideline, and consulting a tax professional for personalized advice is always recommended.
Returning to Work
Social Security Disability Insurance (SSDI) benefits are intended for individuals with limitations that prevent them from working. If a beneficiary returns to work and earns above a certain amount, their benefits are subject to review and potential termination.
The Social Security Administration (SSA) defines this threshold as “substantial gainful activity” (SGA). For 2023, the SGA limit is $1,470 per month, with a higher limit of $2,460 for blind individuals. Earning above these limits may indicate an improvement in your condition and could lead to termination of your benefits.
Overlooking Survivor Benefits
Social Security isn’t just about your retirement income. Spouses (married for at least 10 years) may even qualify for a higher benefit than yours. Additionally, survivor benefits are available for spouses, children under 18 who lose a parent, and some parents who lose a financially supportive child. Having an estate plan can help your loved ones understand and claim these benefits smoothly.
Improving Disability
While Social Security Disability Insurance (SSDI) benefits are meant to last as long as your disability prevents you from working, the Social Security Administration (SSA) reviews cases periodically. The frequency of these reviews depends on your condition’s expected improvement. If doctors believe your disability will improve, the SSA will check in more frequently (every 6-18 months).
Reviews are less frequent (every 3 years) if improvement is possible but uncertain. For conditions with no expected improvement, reviews happen every 7 years. Remember, it’s your responsibility to inform the SSA if your condition improves or you start working. This helps ensure you continue receiving benefits appropriately.
Suspended if imprisoned
If you are sentenced to jail or prison for more than 30 days due to a criminal conviction, the Social Security Administration (SSA) will suspend your retirement or disability benefits. The suspension isn’t automatic, and payments can resume the month after your release. While you won’t receive benefits while incarcerated, eligible spouses and dependents can keep getting theirs.
Volunteering
While volunteering is commendable, it can affect your Social Security disability benefits (SSDI). The SSA considers the type of work you do, not just income. Volunteering that’s similar to your past job or requires significant skills could be deemed “substantial gainful activity,” jeopardizing your benefits. However, programs like AmeriCorps and Foster Grandparents are always safe for volunteering while receiving SSDI.