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3 Social Security Tips That Could Do More Harm Than Good

By Katie Brockman - Feb 20, 2020 at 8:32AM

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These pieces of advice may sound good at first glance, but they could potentially be dangerous.

If you don't have a robust retirement fund, Social Security benefits may end up being the lifeline that keeps you afloat during your senior years.

You'll likely need several hundred thousand dollars (if not well over $1 million) in savings to last the rest of your life. If you don't have that much stashed away by retirement age, you may have to depend on Social Security benefits to make ends meet.

For that reason, it's crucial to ensure you're maximizing your monthly checks. These common tips may seem like good ideas on the surface, but in reality, they could end up costing you big time in retirement.

Senior couple looking worried

Image source: Getty Images.

1. It's always better to delay claiming benefits

One of the most significant factors that affects how much you receive in benefits each month is the age at which you begin claiming your monthly checks. By claiming at your full retirement age (FRA) -- which is either age 66, 66 and a few months, or 67, depending on the year you were born -- you'll receive the full benefit amount you're entitled to based on your work record.

However, you can claim earlier or later than that age. By claiming before your FRA (as early as age 62), your checks will be reduced by up to 30%. But if you claim retirement benefits after your FRA (up to age 70), you'll receive bigger checks each month for the rest of your life. If you have a FRA of 67, you'll receive your full benefit amount plus an additional 24% every month by waiting to claim until age 70.

At first glance, it may seem like delaying benefits is the way to go if you want to receive as much as possible. But that's not always the case, and in some situations, you may actually stand to collect more over a lifetime by claiming earlier.

When deciding what age you should begin claiming benefits, consider your expected lifespan. If you expect to live a very long and healthy life, delaying benefits may be the right decision. But if you have health issues or other reason to believe you may not spend decades in retirement, you may be better off claiming early to make the most of your money while you're relatively young and healthy.

If you don't expect to live into your 80s or beyond, you may actually receive more money in lifetime benefits by claiming early than if you'd delayed benefits.

2. It's a bad idea to claim benefits while you're still working part-time

Many older Americans are choosing to take a non-traditional retirement approach, continuing to work at least part-time well into their 60s or 70s. In fact, one-third of baby boomers say they plan to continue working past age 70 or never retire at all, according to a survey from the Insured Retirement Institute.

If you claim Social Security benefits and then continue working, it could affect your monthly checks. If you haven't yet reached your FRA, the Social Security Administration will reduce your benefits by $1 for every $2 you earn above the annual earnings limit of $18,240. Then in the year you reach your FRA, your checks will be reduced by $1 for every $3 you earn over a different limit of $48,600.

This could make it seem like working while you're receiving benefits is a bad idea. However, once you reach your FRA, the Social Security Administration will recalculate your benefit amount and pay back all the money that was withheld -- meaning you'll end up with bigger checks.

So while you could have some or even all of your benefit amount withheld because you're earning too much, that reduction is largely only temporary. If you choose not to work after claiming benefits because you think it will hurt your monthly checks, you could be missing out on a lot of extra cash.

3. Moving to a state that doesn't tax Social Security benefits will save you money

Even though you've been paying Social Security taxes throughout your entire career, you still may not be able to escape paying state and federal taxes on your benefits in retirement.

However, there are 37 states that do not tax benefits at the state level. Some people, then, may decide that it's a good idea to move to one of these states to save money in retirement. While that can sometimes be a wise choice, it's important to look at the big picture.

There are loads of costs involved with moving, especially if you're relocating to a new state. Before you decide to uproot your life to save money on your tax bill, think about all the other expenses you'll face. Consider how the cost of living in your prospective new city compares to your current neighborhood, for example, and determine whether you'll be paying more or less in other taxes, like income and property taxes.

If you've done your homework and decided that moving would make financial sense for multiple reasons, you could save a lot of money. But if you're only moving to lower your Social Security taxes, you could end up spending much more than you save.

As you're planning for retirement, Social Security benefits are a significant factor to consider. And if you're going to be relying on your monthly checks for a substantial portion of your income in retirement, it's wise to make sure you're doing everything you can to maximize your money and enjoy your later years as comfortably as possible.

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