Social Security Optimization Planning: 7 Costly Mistakes
If you’re looking for ways to maximize your social security benefits, partnering with a registered investment advisor (RIA) can help. At Ivy Ridge Asset Management, our financial planners have helped thousands of people across New York successfully build and maximize their social security benefits. Like almost all government programs, filing to receive your social security benefits can be a complicated and stressful process. Since there are more than 9,200 different ways to file social security for a typical couple, seemingly minor mistakes can have an enormous impact on how much money you ultimately receive. Before you decide to tackle your social security benefits on your own, make sure you don’t make the top 7 mistakes people make when filing for their benefits.
1. You Don’t Coordinate With Your Spouse
On many occasions, married couples don’t realize that they should be working together when it comes time to take their social security. More often than not, couples will focus on their own social security benefits without acknowledging their partners. Many spouses may be eligible for a spousal benefit, which can be up to 50 percent of their spouse’s benefits while they wait to claim their own. If you fail to miss these opportunities, you could end up losing $40,000 to $50,000 in benefits!
Our financial advisors recommend coordinating the timing of both you and your spouse’s claims, so you and your spouse can continue to bring in income while maximizing your total benefits. It’s also critical to consider your partner’s income after your death. If the higher-earning spouse delays their benefits until the age of 70, the surviving spouse, once at full retirement age, can receive 100 percent of the boosted benefit. This extra income could go a long way if the surviving spouse lives well into their nineties.
2. You Don’t Work For At Least 35 Years
Did you know that your social security benefits are based on your highest 35 years of earning history? If you plan on working during retirement, this can be a great way to increase your social security benefits, especially if you’re married and have a spouse. Each additional year of earnings you receive can replace a lower year of earnings, increasing your social security benefits (and potentially your partner’s, too!). If you have less than 35 years in your earning records, those missing years will factor in as zeros when it comes to your social security benefits.
If you need help sorting through your social security benefits, or are just looking for an experienced financial advisor to assess your situation, contact the experts at Ivy Ridge Asset Management.
3. You Claim Social Security Too Early
One of the biggest mistakes you can make is trying to take your social security benefits early. While many people think that once they turn 62 they can automatically collect their benefits, this is far from the truth. Full retirement age varies depending on where you were born. For those born between 1943 and 1954, the full retirement age is considered to be 66. For anyone born in 1955 and later, full retirement age will gradually rise in increments of two months until you reach the age of 67.
There are more than 2,728 rules in the Social Security Administration’s rule book, also known as the Program Operations Manual System. If you’re not sure which rules apply to you and your financial situation, you could make a very costly mistake when it comes time to collect your benefits. Working with a certified financial planner will put your mind at ease because they’ll be able to guide you in the most lucrative direction.
4. You Earn Too Much Money While Collecting
When you claim your social security benefits before reaching full retirement age and continue to work and earn an income, you may be subject to the Retirement Earnings Test (RET). The RET reduces your social security benefits before your reach your full retirement age. Once you reach 62 years of age, your benefits will increase. At Ivy Ridge Asset Management, we recommend always speaking with a registered investment advisor before trying to collect your social security benefits so you can get the hard earned money you deserve.
5. You Ignore Your Taxes
Did you know that your social security benefits are still taxable? Without proper planning and guidance from a financial planner, taxation can reduce your social security benefits by up to 30 percent. Also known as the “Social Security Tax Torpedo”, this steep increase in the marginal tax rate can have negative implications when it comes times to file for your benefits. Before you try filing for yourself, reach out to an experienced financial planner so you don’t get hit with these high taxes and fees.
6. You Don’t Fix Social Security Earning Errors
As you may already know, each year your income is captured by the social security database. Whether you made a mistake filing your earnings or you forgot to include a W-9 in your annual tax report, any errors in your record can hurt you significantly in the long run. The good news is that if there are any errors, you have three years, three months and fifteen days to correct them. You can view your earnings online at the Social Security Administration’s website.
7. You Don’t Run Numbers For All Scenarios
When it comes to your social security benefits, making assumptions can get you into a lot of trouble. It’s critical to run the numbers for all strategies that may apply to you, or you may end up leaving some of your hard-earned money on the table. Schedule an appointment with a registered investment advisor to explore all of your options.
At Ivy Ridge Asset Management in Rhinebeck, we’ve helped thousands of people receive the social security benefits they deserve. If you need help figuring out the best time to claim your social security benefits, contact our experienced financial advisors today. We’ll do everything we can to ensure you receive all of your hard earned money when it comes time to claim your benefits!