Certain Social Security mistakes need to be avoided in May as it could cost you perhaps hundreds or thousands of dollars. While Social Security is said to be a financial lifeline for over 70 million Americans, it’s clearly a misunderstood government program. Although citizens assume they know everything about Social Security, there are approximately 2,700 rules hidden in the 20,000-page operations manual, so it comes as surprise that even well-informed individuals can make costly mistakes.
This May, reassess your Social Security strategy so you can avoid mistakes that could cost you a large sum from your hard-earned retirement income.
The first mistake: claiming Social Security early
While most people feel it’s best to collect Social Security benefits at 62, this is a grave mistake. For those citizens who have stopped working, the thought of claiming this benefit early could be rather tempting. While it is desirable to start collecting this benefit early, you could be costing yourself about six-figures of missed benefit. The economist, Laurence Kotlikoff has stated that claiming for your Social Security benefit at 62 instead of waiting until age 70 could slash your monthly benefits by as much as 30%, potentially causing you to lose out on about $182,000 in your lifetime.
While people have always used the average life expectancy calculators to decide when to claim, Kotlikoff argues that’s the wrong approach. The best way to decide when to collect your Social Security benefit is to plan to live to the maximum age.
Early claims could severely reduce your benefit and prove to be troublesome if you do live much longer. Claiming at 70 years only could increase your overall payout by 8%. The sad reality is that a mere 6% of Americans wait until full retirement age before they start claiming this benefit. This is surely a dire mistake especially if you are healthy and still have good working years ahead of you.
The second mistake: mishandling Survivor Benefits
The second mistake in terms of Social Security benefits are made by widows or widowers who have been deemed eligible for Survivor Benefits. For citizens who can collect payments based on their late spouse’s earnings, the costliest trap is that of filling for both their own retirement benefit and the Survivor Benefit at the same time.
While many citizens are under the misconception that they will be doubling their support, the Social Security Administration (SSA) will merely pay out whichever benefit is higher.
Why do avoid filing for both benefits at the same time?
Gone are the days where the “file and suspend” technique worked as claiming both benefits at the same time can backfire and result in the retirement benefit being much lower. The reason is because once a citizen claims a benefit, the benefit gets permanently reduced based on the citizen’s age at the time of filing. Essentially, if one’s Survivor Benefit is higher, the person has locked in a lower retirement benefit forever, while they could have received much more if they filed the claim for the Social Security benefit at a later stage.
Always claim one benefit at a time and know how the SSA calculates your benefits. Begin by claiming the Survivor Benefit at 60 or later and try to prolong claiming for your own retirement benefit only when you reach 70. If you have claimed both benefits at the same time, and 12-month pass, you cannot undo it.
The takeaway in terms of receiving more from the SSA
Advice from experts like Kotlikoff suggests that citizens must not always rely on Social Security Administration’s advice only. Citizens have been misinformed by SSA employees, and this costed them much from their future benefits. Knowing when to claim and how to claim for one benefit at a time can save you severe heartache later on in life.
The wrong decisions could come at a steep price when it comes to Social Security benefits and the gravest mistakes made by recipients could last for a lifetime. May is a good time to reassess your Social Security options and to familiarize yourself with the Social Security payment schedule.
