Retirement is a journey. Getting where you want to go requires a plan.
Last month I told you about three common Social Security traps you need to watch out for: collecting benefits too soon, collecting prior to your full retirement age while still working, and not accounting for your Social Security income being taxed. This month I’ll go over three more mistakes people make when claiming Social Security benefits that cost them money.
You decide to defer the spousal benefit.
The longer you wait to take Social Security, the greater the monthly benefit, up to age 70. So, why not employ the same strategy for your spouse, if money isn’t the primary issue? Unfortunately, that may not be a wise choice. The most your spouse may receive is 50% of the monthly benefit of the primary account that you are entitled to at full retirement age. If your spouse waits past his or her full retirement age, he or she is leaving money with the government.
Remarriage and your benefit.
It’s complicated. You may already be aware that divorced spouses are eligible for benefits tied to their former marriage. Eligibility is determined by these criteria:
- You were married for at least 10 straight years.
- You are at least 62 years old.
- Your ex-spouse is eligible for retirement benefits.
- You are currently unmarried.
However, if you remarry, you lose the rights to your former spouse’s benefits unless your new marriage ends, whether by death or divorce. I understand that the monthly Social Security check you receive may pale in comparison with the new journey you are about to begin, but it’s important that you are aware of the financial component.
How many years have you worked?
Most of us understand one simple concept: the longer we wait to take Social Security (up to age 70) the higher the benefit (spousal benefit may be an exception–see point above).
We also understand that higher wage earners can expect to receive a higher benefit. But did you realize that your monthly benefit is also based on your highest 35 years of earnings?
What if you haven’t worked 35 years? Social Security averages in zero for those years, which reduces your benefit. If you have at least 35 years but some of those years are low earning years, they will be averaged in, creating lower benefit versus continued employment at higher wages.
Are you still working in your 50s or 60s? Great! Those afterschool jobs in high school or years when your income may have been low are removed from the benefit calculation if you’ve exceeded 35 years of income.
When we are factoring in pensions and retirement savings, those extra dollars may or may not amount to much, but I believe it is something to be aware of.
For some folks, Social Security may seem simple. For others, it feels as if you’re entering a complicated financial maze. If you have questions about Social Security or are uncertain how to proceed, feel free to give us a call.
Finally, feel free to run any tax scenarios by your tax advisor.
Mark Singer, CFPⓇ, lives in Swampscott and has been in the financial industry for over three decades. If you have any questions contact him at 781.599.2660 or email@example.com.