Social security benefits are earned benefits because most (but not all) Americans pay taxes for every dollar they earn. Since you have paid into the program throughout your professional life, you deserve to take advantage of the promised benefits.
Unfortunately, social security is very confusing, and there are surprisingly many ways that you can lose your benefits without even realizing the impact of your actions. Here are 10 possible problems that you should know about and avoid – if you can.
1. Social security claim too early
Although the benefits can be claimed from the age of 62, use of them at any time before full retirement age (FRA) is associated with a high price.
The FRA is now between 66 and 67 years old and you will face early submission penalties for each month you claim in advance. Both of these can reduce your benefit and Reduce survivor benefits. The cost of using it early can be daunting. If you are married and both you and your spouse are 62 years old, you could end up receiving $ 500,000 less in lifetime benefits than if you both waited until you were 70.
2. Social security claim too late
Since you’ve just read how expensive it is to get benefits early, you’re probably confused as to why you’re claiming too late also leads to a loss.
The reason is simple: if you receive benefits after the age of 62, you miss an income that you could have received if you had received benefits in the first month that you were entitled to. Later checks are larger checks, but you need enough larger checks to break even. Whether that happens depends on how long you live.
Of course, nobody knows when they will be passed on. However, if you have had family health problems or poor health in the past (and are not worried about maximizing survivor benefits for a spouse), you can lose a lot of money if you wait to claim and close soon after to die.
3. You don’t understand all the benefits you are entitled to
If your spouse has died, you should be entitled to survivor benefits. This also applies if you were divorced before the death of your spouse, as long as you were married for at least 10 years and did not remarry before the age of 60. Unfortunately, not two thirds of people know that.
And it’s not just divorces who are confused about how survivor benefits work. A report by the Inspector General found that more than eight out of ten people who were entitled to both their own benefits and survivors’ benefits did not receive the information needed to choose the right claim strategy. Widows and widowers have lost a whopping $ 131.8 million in benefits due to this mistake.
4. To be divorced too soon
As mentioned above, divorces with a deceased ex should receive survivor benefits if the marriage lasted at least 10 years. If your ex is still alive, you may still be entitled to spouse benefits after at least a decade of marriage.
If your spouse earns more money than you, losing access to these benefits means missing out on more social security income. And because people can often earn a high income because For a supportive spouse at home, these are your benefits to which you are entitled.
Of course, no one suggests that you should stay married for a decade to get higher social security checks. However, if you’re about to reach this milestone, you can avoid losing tens of thousands of dollars in benefits that you deserve if you postpone a divorce until you reach it.
5. You cannot check your earnings history
While it makes sense to receive spouse or survivor benefits if your current or former spouse earns more than you, many retirees receive benefits based on their own work records. When you do, social security calculates the amount you are entitled to based on a percentage of the average wage over the 35 years that you have earned the most.
If your earnings history is incorrect, you will unfortunately not be credited for all the money you have earned (and on which you have paid social security taxes). To ensure that this does not happen, check your earnings card at least once a year and take action if there is a mistake.
6. Live in the wrong state
There are currently 13 states in the United States that tax social security benefits for at least some retirees. By 2022 there will be 12. If you are forced to give up part of your state tax benefits, your income will be all the lower. To avoid losing your benefits this way, consider moving where you can keep all your money.
7. Earn too much taxable income
Speaking of taxes, you could also be subject to federal taxes as soon as your countable income reaches $ 25,000 as a single applicant or $ 32,000 as a married applicant. Depending on how much you earn, up to 50% to 85% of your retirement benefits can be taxed.
The key, however, is that only part of your income is countable, including half of your social security benefits and other taxable income. If you want to avoid losing your benefits to the IRS but don’t have to worry about keeping your income low, consider investing in a Roth IRA or 401 (k) instead of a conventional one. Your investment account distributions are not counted, so you can keep more of your money.
8. Working while collecting
If you are under full retirement age, your benefits will be cut if you make too much money. The threshold changes every year, and there are different rules for those who reach their FRA in the year they work than for those who do not. But once you hit your income limit and keep working, you’ll miss part of your money.
Finally, you will get back what you lost if the social security agency recalculates your monthly benefit after you reach full retirement age. But the breakeven point can last for years, and you may not live long enough to get it all.
9. Born in the wrong year
When determining your benefit amount, the social security formula is based in several ways on the national average wage in the year in which you turned 60.
Unfortunately, if you’re unlucky enough to be born in a year in which the average wage in the country tends to go down rather than up (possibly due to a corona virus or a financial crisis caused by the implosion of the property market), you can lose a good part of the benefits you would otherwise have received. In fact, those who turn 60 this year could miss life-long benefits of around $ 70,000 because they were unlucky enough to be born in America 60 years before COVID-19, which led to record unemployment.
10. Funding constraints
Social security is on the way to a financial disaster. The trust fund is expected to run out of money in 2035 or earlier. If the money runs out, retirees might consider cutting benefits by 24%. Legislators have tried to fix the program’s finances in the past but have been unsuccessful. If they don’t act soon, it can be so expensive to fix the problem that cutbacks in performance become inevitable.
If you don’t want to lose your retirement benefits because Congress doesn’t act, hold your representative accountable and ask any candidate you are considering to vote for their plan for a solution.
Don’t miss the social security benefits you should own
As you can see, there are far too many ways you can lose the social security income that you both need and deserve. Before using your services, make sure you have researched everything you are entitled to. Think carefully about your claims strategy and consider speaking to a financial advisor if you are unsure which approach is best. Since your retirement provision will probably be an important source of income in later years, it is worth the effort.