Unfortunately, social security is really confusing, and there are a surprising number of ways in which you could lose your benefits without even realizing the effects of your actions. Here are 10 potential problems you should be aware of and avoid – if you can.
1. Claiming social security too early
Although benefits can be started as early as age 62, claiming at any time before your retirement age (FRA) is expensive.
FRA is now between 66 and 67 years old, and you are subject to early deposit penalties for each month you claim before. These can both reduce your benefits and reduce survivor benefits. The cost of an early claim can be extremely high. In fact, if you are married and you and your spouse apply at age 62, you could end up with $ 500,000 less in lifetime benefits than if you had both waited until age 70.
2. Claiming social security too late
As you have just read how expensive it is to claim benefits too early, you are probably wondering why it is too late as well leads to a loss.
The reason is simple: when you apply for benefits at any time after the age of 62, you are missing some income that you could have received if you had started receiving benefits the first month you qualified. Subsequent checks are larger, but you need checks that are large enough to meet the missing income threshold. Whether this happens depends on the length of your life.
Of course, no one knows when they will die. But if you have a history of family health problems or are in poor health (and don’t worry about maximizing survivor benefits for a spouse), you could lose a lot of money if you wait to claim and die soon after.
3. Failure to understand all the benefits to which you are entitled
If your spouse dies, you should be eligible for survivor benefits. This is true even if you were divorced before the death of your spouse, as long as you have been married for at least 10 years and you do not remarry before the age of 60. Unfortunately, up to two-thirds of people do not know this.
And it’s not just divorced people who don’t know how survivor benefits work. An Inspector General’s report found that more than eight in ten people who were entitled to their own benefits and survivors’ benefits had not been given the information they needed to choose the right claim strategy. Widows and widowers lost $ 131.1 million in benefits because of this error.
4. Divorced too early
As mentioned above, divorcees with a deceased ex should receive survivor benefits if the marriage lasted at least 10 years. If your ex is still alive, you may also be able to claim spousal benefits after a marriage of at least a decade.
If your spouse earns more money than you, losing access to these benefits means missing more Social Security income. And as people can often earn a high income car of a supportive spouse at home, these are your benefits to which you are entitled.
Of course, no one is suggesting that you should stay married for a decade just to get higher Social Security checks. But if you’re about to reach that milestone, postponing the divorce until you reach it could save you from losing tens of thousands of dollars in the benefits you deserve.
5. Do not check your earnings history
While getting spouse or survivor benefits makes sense if your current or former spouse earns more than you do, many retirees receive benefits based on their own work history. If you do, Social Security calculates the amount to which you are entitled on the basis of a percentage of the average salary for the 35 years you have earned the most.
Unfortunately, if your income history is wrong, you will not get credit for all the money you have earned (and paid social security taxes). To make sure this doesn’t happen, check your income history at least once a year and take action if you make a mistake.
6. Living in bad condition
In the United States, 13 states currently impose social security benefits on at least some retirees. By 2022, there will be 12. If you are forced to cede part of your benefits to state taxes, your income will be lower. To avoid losing your benefits this way, consider moving to a place where you can keep all of your money.
7. Earning Too Much Taxable Income
Speaking of taxes, you may also be subject to these taxes at the federal level once your book income reaches $ 25,000 as a single filer or $ 32,000 as a married spouse filer. Depending on the amount you earn, up to 50% to 85% of your retirement benefits may be taxed.
But the key is that only certain income is bookable, including half of your social security benefits as well as other taxable income. If you want to avoid losing your benefits to the IRS but don’t want to have to worry about keeping your income low, consider investing in a Roth IRA or 401 (k) instead of a traditional one. Distributions from your investment account will not be counted as countable, so you can keep more of your money.
8. Work during their collection
If you have not reached retirement age, your benefits will be reduced if you earn too much money. The threshold changes each year, and there are different rules for those who will receive their FRA in the year they work compared to those who will not. But once you reach your income limit and keep working, you’re going to miss some of your money.
You ultimately recover what you have lost when the Social Security Administration recalculates your monthly allowance after reaching retirement age. But break even can take years, and you may not live long enough to get it all.
9. Born in the wrong year
When determining the amount of your benefits, the social security formula is based on the national average salary for the year you turn 60 in several ways.
Unfortunately, if you are unlucky enough to be born in a year when the average salary in the country decreases instead of increasing (perhaps due to the coronavirus or a financial crisis caused by the implosion of the real estate market), you could lose much of the benefits you would otherwise have received. In fact, those who turn 60 this year may miss approximately $ 70,000 in lifetime benefits because they were not fortunate enough to be born 60 years before COVID-19 reached America and resulted in a record unemployment.
10. Lack of funding
Social security is on the verge of a financial disaster, its trust fund expected to run out in 2035 or before. When the money runs out, retirees may consider cutting benefits by 24%. Legislators have attempted in the past to fix the finances for the program, but to no avail. If they don’t act quickly, it could become so expensive to fix it that cutting benefits would become inevitable.
If you don’t want to lose your retirement money because Congress is not acting, hold your representative accountable and ask any candidate you plan to vote to find out what their plan is for a solution.
Don’t miss the social security benefits that should be yours
As you can see, there are far too many ways to lose Social Security income that you need and deserve. Before claiming your benefits, make sure you have researched everything to which you are entitled. Think carefully about your claim strategy and consider speaking to a financial advisor if you are unsure of the best approach. Since your retirement benefits are likely to be a major source of income in your later years, it is worth the effort.