Don’t let these mistakes catch you off guard.
Many seniors today rely heavily on Social Security to cover their basic living expenses. Chances are, those monthly benefits will play a significant role in your retirement finances as well.
That’s why it’s crucial to have a well-thought-out strategy when it comes to claiming Social Security. Unfortunately, you might be at risk of making one of the common mistakes that many retirees fall into.
Claiming benefits too early
The earliest age you can begin receiving Social Security is 62. However, if you want to receive your full monthly benefit based on your earnings history, you’ll need to wait until full retirement age, which is between 66 and 67, depending on your birth year.
It might be tempting to start collecting benefits at 62, but doing so could reduce your monthly Social Security income by up to 30%. This reduction could make your retirement finances much more challenging.
Before claiming benefits before full retirement age, take a close look at your savings and be realistic about the income you’ll receive from your IRA or 401(k). If those sources of income are limited, it’s probably wiser to hold off on Social Security until full retirement age, or even later.
Delaying benefits when in poor health
Although full retirement age is when you can collect your full Social Security benefit, delaying your claim beyond that age can increase your monthly benefit by 8% for each year you wait, up until age 70.
Delaying Social Security can be beneficial in many cases, especially if you have little savings or expect to live a long life. But if you’re in poor health and anticipate a shorter lifespan, delaying your claim until 70 could be one of the worst financial mistakes you make.
While waiting until 70 might increase your monthly payments, you could miss out on lifetime income. Be honest about your health and consider your family history. If your parents or grandparents didn’t live past their mid-70s, and your health in your 60s is similar to theirs, it may be wiser to claim benefits earlier to maximize your lifetime income.
Overlooking the option to undo your claim
Age 62 is a common age to start receiving Social Security benefits. However, many seniors who file at that age later regret it when they realize how much their monthly benefits have been reduced, and they mistakenly believe there’s nothing they can do about it.
But Social Security allows each filer one do-over in their lifetime. If you claim benefits at 62 and later decide it was a mistake, you can withdraw your claim, repay the benefits you received within a year, and then file at a later date for a higher benefit.
Of course, if you choose to use this option, you’ll need an alternative source of income to replace the Social Security benefits you’ll lose after withdrawing your claim. But if you can manage that, you could set yourself up for a much higher benefit later.
It’s essential to carefully consider your decision before claiming Social Security and to understand how the program works. Educate yourself on Social Security to avoid these and other costly mistakes that could reduce your income or make your retirement more difficult than necessary.
