How to Maximize Your Social Security Income: 3 Mistakes to Avoid

Maximizing your Social Security income is critically important and requires planning. Make sure you're on the right path by avoiding these top Social Security mistakes.

Apr 26, 2014 at 1:30PM

Did you know that half of Americans 65 and older rely on Social Security for at least 50% of their family income? And, according to the Social Security Administration, the average benefit in December 2013 was $1,294 per month for retired workers -- while the maximum benefit for a worker retiring at full retirement age is $2,642. That's a big difference! Maximizing your Social Security income is critically important and requires planning. Make sure you're on the right path by avoiding these top Social Security mistakes.

1. Collecting too early
Claiming Social Security benefits too soon can cost you thousands of dollars over your lifetime. If you wait until full retirement age (67 for those born 1960 and later), your monthly benefit will be about 30% higher than if you had started receiving benefits at age 62, when you first become eligible. You can increase your payments another 8% annually (via delayed retirement credits) by applying for benefits at full retirement age and then requesting to have payments suspended until you turn 70.

Consider this example: Worker Joe Jones is eligible for a monthly Social Security benefit of $1,960 at his full retirement age of 66. Let's compare the total amount of benefits he would receive over his lifetime at early retirement, full retirement, and late retirement (assuming he lives until age 90):

  • Starting at age 62 (taking a reduced benefit): $495,163
  • Starting at age 66 (taking full benefits): $564,480
  • Starting at age 70 (taking advantage of an increased benefit and delayed-retirement credits): $620,928 

The difference can be as much as $125,765 in retirement income, which can have a significant impact on your retirement lifestyle.

2. Not considering spousal benefits
Filing early for Social Security can have consequences for spousal benefits, too. When you apply for retirement benefits, your spouse may also be eligible for benefits based on your earnings -- up to 50% of the benefit you receive. If you take reduced benefits as a result of early retirement, your spouse's benefit will be similarly reduced.

The issue becomes more complicated if your spouse is entitled to benefits of his or her own. If your spouse waits until full retirement age to file for benefits, he or she could opt to take the spousal benefit and allow the benefit based on his or her own earnings to grow through delayed retirement credits. Whether this is the best strategy, though, depends on which benefit would produce a higher retirement income.

3. Accelerating traditional IRA withdrawals just because you can
You're eligible to begin receiving penalty-free income from traditional IRAs at age 59-1/2, but you aren't required to until age 70-1/2. You might be tempted to start taking withdrawals as soon as you can, but if you do, keep in mind that this additional income could impact the amount of your tax liability -- especially when combined with your Social Security income. You could get a shock when you have to pay your first adjusted tax bill. The takeaway: Don't start piling on the income without any sort of planning.

Don't be one of those retired workers receiving a mere portion of the Social Security benefit they could be collecting. You work too hard for your money to let that happen. Talk with an investment advisor to make sure you're maximizing your Social Security benefits and producing the highest retirement income possible.

How to get even more income during retirement
Social Security plays a key role in your financial security, but it's not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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