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Important update from Jim Jensen on November 13, 2015!
There have been some HUGE changes to social security that just occurred with the 2015 budget that effects many of these. Be sure to listen to my podcast where I interview Jim Saulnier & Chris Stein, which will air very soon. This will be a very important update!!!!
In episode 20, I talk about the 10 most costly social security mistakes that us baby boomers make. Heads up boomers! This can save you over a $100,000 and may be the difference between a comfortable retirement and a financial struggle in your final years.
10,000 of us baby boomers hit the age of 65 each and every day and most of these boomers are or will be dependent on social security for income for the rest of their lives. All too often us boomers just assume that we will automatically start social security at 62 and then collect the benefits until we pass into the great beyond. Nothing could be further from the truth. So let’s get right into the 10 worse mistakes that you need to avoid.
#1 Mistake – Claiming your social security benefits too early
This is by far the biggest mistake that most Americans make. this mistake is based on the erroneous belief that social security is an automatic benefit, turned on when you become 62 and that’s that. There are almost 3,000 rules in the Social Security Program Operations Manual System and trying to figure out specifically which ones apply to you is a daunting task, even for a CPA Claiming your benefits at 70 rather than 62 will up your benefits by 176%. Patience is a virtue! Many people think of retirement age as 65. But with Social Security, full retirement age varies depending on when you were born. For you boomers out there born between 1943 and 1954, full retirement age is 66. But starting with those born in 1955, full retirement age will gradually rise in increments of two months until reaching age 67 for those born in 1960 and beyond.
Full retirement age matters big-time for two reasons: One, it’s the age when you can claim your full benefit with no reduction, and two, it’s the age that unlocks a host of claiming strategies that allow you to boost your benefits.
#2 Mistake – Failure to coordinate benefits with your spouse
Oftentimes, married couples only focus on their own social security benefits without realizing that they may also be eligible for up to 50% of their spouses benefit while they wait to claim their own. This often costs couples $40k – 50k in lost benefits. Generally, the spouse with the higher earnings should be very careful as to when to claim social security benefits. This is because the social security benefit of the higher earning spouse will be the one which will last the longest and be inherited by the surviving spouse. Couples that fail to maximize this benefit can miss another $70 – $80K in benefits. So the lesson here…if you’re a couple, plan your social security strategy as a couple.
#3 Mistake – The Failure to work for at least 35 years
Your social security benefits is based on your highest of 35 years of work history. If you don’t have a full 35 years than the remaining years will be counted as zero. This can substantially lower your benefits. Even if you have more than 35 years of work history it may still be of benefit to continue working to replace the lower earning years, such as when you were bussing tables in high school. You don’t have to be working consecutively too. You can stop and start again. If it looks like you’re going to be shy of 35 years or some years are very light than you can make up for it by working later. Part-time work counts.
#4 Mistake – Earning too much when collecting social security benefits
Another big-time mistake that many boomers make is to ignore the earnings test. If you claim social security benefits prior to your Full retirement age, which is 66 for most people, and you continue earning income than your earnings will be subject to the dread earning test. This means that if you earn more than $15,720 in 2015 than the social security administration will hold $1 of every $2 that you earn above that amount.
#5 Mistake – Ignoring The Impact Of Taxes
Have you ever heard of the Social Security Tax Torpedo? No, well you should because is what can happen to your benefits if you don’t take into account tax planning. Your benefits can be reduced by up to 30% from taxes. Oftentimes, this can be avoided. Talk to your CPA! If you don’t have one, get one.
#6 Mistake – Not checking and Fixing Errors In Your Social Security Earnings Record
It can be a big mistake to assume that your social security record is accurate. All your data is kept at a government run database. What are the odds of a mistake? This can potentially cost you thousands of dollars in benefits due to faulty information. If there are errors than you have 3 years, 3 months and 15 days to correct them. You can view your up-to-date earnings as per the beliefs of the Social Security Administration.
Click Here to view your up-to-day earnings
#7 Mistake – failing to minimize the damage made when you claim too early
If you discover that you’ve claimed your social security benefits too early, all is not lost. Many people don’t realize that they can suspend the receipt of benefits until they reach full retirement to minimize the damage caused by claiming too early. You are also able to completely withdraw your application if done within a year of filing.
#8 Mistake – Failing to consider the technique of filing and suspending
When you claim a Social Security benefit, you don’t actually have to take it right away. You can file for a benefit and then immediately suspend it. You may want to do this for several reasons. e of reasons. First, if you’re married, your spouse cannot take a spousal benefit without you filing for yours. By filing and suspending, you can unlock the spousal benefit for your wife or husband, while letting yours earn delayed retirement credits.
Singles also can benefit from this strategy. Filing and suspending at full retirement age allows a beneficiary some “insurance” when making the decision to delay. Say you get a serious medical diagnosis, and you decide you need to take benefits at age 68, instead of delaying until age 70. You could choose to get a lump sum going back to the date you filed and suspended.
#9 Mistake – Failing to claim a widow’s benefit
This can be a hugely costly mistake and many people over-look it. If you are a widow or widower, you are entitled to a survivor benefit from you’re deceased spouses record and it can be claimed as early as age 60, though it will be reduced if you take it before your full retirement age. If you wait to claim at your retirement age than This benefit is worth 100% of the amount that your spouse was receiving at the time of his or her death Or what he or she would have been eligible to receive if they hadn’t yet claimed benefits.
At your full retirement age or later, the benefit is worth 100% of the benefit amount your spouse was receiving at the time of his death – or what he or she would have been eligible to receive if they hadn’t yet claimed their benefit. Any delayed retirement credits earned by the time of death will be included in the survivor benefit. And if you remarry after age 60, you can continue to take the survivor benefit.
#10 Mistake – Failing to consider benefits from your EX spouse
If you were married for 10 years or more than you will be eligible for your former spouses social security benefits. This can actually benefit both former spouses. If you claim your social security benefits at least 2 years after your divorce than you can each claim a spousal benefit. If you are qualified on your ex’s record than you can use some of the same maximizing benefits with that as married people can. And…When your ex-spouse dies, you can qualify for a survivor benefit off their record, too — that’s worth 100% of what your ex received at death.
But what happens if you get re-married? If you get remarried and you are collecting on your former spouses benefits it will stop immediately. But, you are still eligible to collect on survival benefits when you former spouse dies.
The most obvious take-away is to wait before you start claiming your social security benefits. Every additional year that you wait can add 8% to your benefits. Another big take-away is that you should run the numbers on multiple scenarios to determine which strategy would produce the most benefits. Often-times it’s not the one that is the most obvious.
It often behooves couples to get good advice before applying for benefits. Unfortunately many financial planning and brokerage firms are not adequately prepared for offering this advice so be sure to verify their expertise. Getting the proper advice up front can save you and your partner tens of thousands of dollars.
Click Here for the AARP Social Security Calculator
Click Here for the Social Security Administration Detailed Calculator
Click Here for the Social Security Administration Online Calculator
Click Here for a good article on getting help with planning your social security
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Thank you so much!
Very informative. I had no idea about some of these. I am so sick of working! Been working over 40 years now and want to retire so badly but it looks like I will never enjoy it since I will probably be dead by then which I'm sure SSI counts on.
Thanks for the comment Patricia. Yea, I didn't know about a lot of these too. It really pays to get some good advice from a professional that specializes in Social Security. Hang in there.
Idolly D. White says
The unfair WEPT factor!
Thanks for Comment! I'm going to do a follow-up show that covers a lot of the areas of Social Security that I missed with the first one. I'm in the learning process too! 😉