However, many retirees may unknowingly sabotage their monthly checks. About 37% of baby boomers say they expect Social Security to be their main source of retirement income, according to a report from the Transamerica Center for Retirement Studies. If you have similar plans, it’s especially important to make sure you’re aware of a few of the ways you could potentially lose your benefits.
1. Work under 35
To qualify for Social Security benefits, you generally must have worked and paid Social Security taxes for at least 10 years. However, if you were working under 35 when you start claiming benefits, you may receive smaller checks.
The social security administration calculates the amount of your basic benefit – or the amount you will receive by claiming at your retirement age – by taking an average of your income over the 35 highest-earning years of your career, then adjusting it for inflation. .
If you haven’t worked for 35 years, you’ll have zeros added to your equation to account for years you didn’t work. This could lower your average salary, which will reduce your benefit amount.
2. Not taking advantage of all the types of benefits to which you are entitled
When you think of Social Security benefits, you may primarily think of retirement benefits. However, there are other types of benefits you may be entitled to, including spousal, divorce, or survivor benefits.
If your spouse has the highest household income and is eligible for Social Security benefits, you may be eligible to collect spousal benefits. The maximum you can receive in spousal benefits is 50% of the amount your spouse is entitled to receive at retirement age. Likewise, if your ex-spouse is entitled to benefits, you may be able to apply for divorce benefits based on their work history as long as you were both married for at least 10 years and you are not. not currently married.
If you are also eligible for social security benefits on the basis of your own employment record, the social security administration will pay your benefits first. Then, if you are entitled to more money in spouse or divorce benefits, you will receive a little more each month.
Survivor benefits are generally available for widows and widowers aged 60 and over, but children, parents and other family members who were financially dependent on the deceased are also sometimes eligible for these benefits.
3. Forget about social security taxes
Even if you’ve been contributing to the Social Security program for years, Uncle Sam will still try to take some of your benefits through state and federal taxes.
Whether you have to pay taxes on your benefits depends on where you live, as each state has slightly different laws. Some states will not tax your benefits at all, while others may have exemptions based on your income.
For federal taxes, the amount you owe will depend on your “combined income,” which is half of your annual benefit amount plus your other sources of income (excluding Roth IRA withdrawals). If you have a combined income of more than $ 34,000 per year (or $ 44,000 per year for married couples filing jointly), you will owe federal taxes on up to 85% of your benefits.
While you can’t avoid taxes on your benefits, you can do your best to plan for them so that you won’t be taken by surprise once you retire.
How to get the most of your benefits
Social Security benefits are an integral part of the retirement plans of many Americans. It is wise to take full advantage of it. By making sure you work enough years to collect the full amount of your benefits, by reporting all the different types of benefits to which you are entitled, and by factoring in the taxes in your pension plan, you will be on your way to achieving secure retirement.