When Social Security kicked off in August 1935, opportunities opened up for many Americans. After all, a third of the 61 million U.S. citizens depend on the benefits for the bulk of their monthly income. The unfortunate side of Social Security is that cashing in on the benefits isn’t as cut and dry as many assume. Common mistakes and misunderstandings happen every day. Here is how one big mistake ended up costing one woman $31,000 (page 5), plus other common mistakes to avoid.
1. Not planning for the correct retirement age
The implications for cashing in your Social Security benefits early are significant, which is why it is crucial to plan accordingly. Anyone born between 1943 and 1954 can reap the full benefits of Social Security at the age of 66. For the individuals born from 1955 and beyond, full benefits will eventually not be available until 67 years old.
Next: How many years have you actually worked?
2. Not working for 35 years could be your enemy
In order to get the most Social Security bang for those work-day bucks, a person needs to have 35 years of work under their belt. Benefits are calculated based on the 35 highest yearly earnings over the course of a person’s career. While those working years do not have to be consecutive, the benefits will be lower for every year a person did not work (below 35).
Luckily, if a person chooses to re-enter the workforce to contribute towards that 35-year benchmark, any part-time year of work will increase those Social Security benefits.
Next: Here’s how not planning properly could really impact a person’s quality of life.
3. Taking your benefit too soon
For those who did not plan well or found themselves in a bind, cashing in on early Social Security benefits has huge impacts on the bottom line. As it currently stands, an individual can start claiming benefits as early as 62 years old, but not without repercussion. Once those benefits are withdrawn prematurely, they are immediately and permanently slashed by 25%. That means a $2,000 benefit suddenly became $1,500.
Next: If your partner passes, make sure not to forget this.
4. Forgetting to claim your widow or widower benefit
In the whirlwind and grief of losing a spouse, it is easy to lose sight and forget to claim a late spouse’s Social Security benefits. It is called the survivor benefit. Once the widow or widower has reached full retirement age, they can claim and receive 100% of their late spouse’s benefits. Furthermore, the survivor benefit can still be claimed even if a person remarries after the age of 60.
Next: This mistake ended up costing one woman $31,000.
5. Not taking full advantage of the spousal benefit
Because there is so much unvolunteered information out there, 68-year-old Kay Dobson missed out on $31,000 worth of spousal benefits. How? Any person who has turned 62 years old before January 2, 2016, can claim a spousal benefit while delaying their own benefits until 70. This would have added 8% in delayed benefit credits to Dobson’s Social Security.
It wasn’t until two years after she reached her full retirement age that Dobson realized she could have been receiving spousal benefits. But because Social Security only pays six months of retroactive spousal benefits, she lost out on thousands of dollars she would have received if she had filed sooner.
Next: To divorce or not to divorce?
6. Divorcing too soon
A bizarre but good-to-know loophole is knowing that if a couple remains married for 10 years prior to divorce, the divorcees can for spousal benefits on one another. This loophole only applies to those filing for benefits within two years of the divorce. It’s a mutually beneficial reason to stay hitched for a few months longer.
Next: Part of the spousal benefit loophole requires this savvy move.
7. Not filing a restricted application (if you can)
Another spousal benefit hack comes in the form of filing a restricted application. This goes hand-in-hand with Dobson’s issue. In limited cases, a beneficiary can file for spousal benefits while letting their own benefit grow until they reach age 70. Taking this route could add tens of thousands of dollars to a person’s overall Social Security benefits. However, this strategy is only available to those born on or before January 1, 1954.
Next: By all means, do not forget to consult a knowledgeable financial adviser.
8. Not connecting with a financial adviser
The fact of the matter is that Social Security benefits are not as clear-cut as one would hope. Because of that, it is crucial to make sure a financial adviser is laying out all of the options. According to the Nationwide Retirement Institute, 59% of individuals working with an adviser isn’t being instructed on Social Security benefits. Insisting that all the cards be laid on the table is crucial to maximizing retirement benefits.