Get More Retirement Income: Avoid These 7 Social Security Mistakes
Social Security may be an important part of your retirement future. It’s crucial to avoid common mistakes that can cost you money during retirement.
Consider these strategies to avoid common mistakes:
1. Avoid claiming benefits too early.
If you have other income coming in and can afford to wait, then you may want to delay claiming your benefits. Your benefits grow every year you wait to claim them.
- By claiming benefits early, you reduce how much money you will receive for the rest of your retirement.
- However, it’s important to note that sometimes claiming early benefits can be more advantageous than waiting. For example, if you’re expecting a shorter lifespan, you might want to start receiving your Social Security earnings early. Also, if you have children under 18 years old when you’re 62, you may get more by claiming early.
- It’s always good to check your estimated benefits on the calculators at the Social Security website.
2. Consider the tax implications.
Are you aware that Social Security benefits can be taxed?
- It’s a common mistake to forget the tax implications of Social Security benefits. Experts call this issue the Social Security Tax Torpedo. Your benefits can be taxed at a high rate, and it can last for your entire retirement.
- Your total income affects the tax rate you’ll be subject to.
3. Consider the total years you’ve worked.
Social Security looks at 35 years of earnings to determine benefits. Have you worked for 35 years? They use the income from your highest-earning 35 years, indexed for inflation, to figure out what your average yearly income was.
- Generally, the longer your record, the higher your benefits.
4. Check your records each year.
As you work on your taxes, you may want to use this time as a reminder to check your Social Security records.
- It’s possible for your records to have missing information or errors. Social Security gives you 3 years to fix an error on the record. After this time, it may be impossible to fix.
5. Consider your partner’s income.
Have you considered your partner’s retirement and Social Security benefits? If your partner earns significantly more than you do, you might be able to collect higher benefits based on your partner’s earnings.
6. Consider the maximum benefit.
Each year, Social Security has a cap on the amount of income that you pay Social Security taxes on. If you earn a high income, some of your income-producing years might exceed the limit, and the excess income won’t be used in figuring your average income amount. You can find these limits on the official website.
Only the social security tax has a wage base limit. The wage base limit is the maximum wage that’s subject to the tax for that year. For earnings in 2021, this base is $142,800. Refer to “What’s New” in Publication 15 for the current wage limit for social security wages; or Publication 51 for agricultural employers.
There’s no wage base limit for Medicare tax. All covered wages are subject to Medicare tax.
7. Pay attention to the COLA.
The COLA refers to the cost-of-living adjustment.
- The cost-of-living adjustment is essentially inflation protection for your Social Security benefits. It’s created to adjust your earnings, so your benefits keep up with the cost of groceries, gas, rent, and other services.
- Retirees can make the mistake of assuming that the cost-of-living adjustment will be enough in future years. Based on current trends, experts warn retirees to be careful and not make assumptions. The COLA is linked to the federal consumer price index amounts.
- The cost-of-living adjustment tends to be very small, so retirees shouldn’t expect this to change in the future.
Social Security can be an essential part of your retirement plans. Use these strategies to avoid mistakes that can cost you money in your retirement. A little planning now can pay off big in your future.