Social Security could end up being an important source of income you rely on during retirement. So the last thing you want to do is botch your filing decision.
Now a good way to make the most of Social Security is to develop a solid filing strategy. There's a range of ages for signing up for benefits, and choosing the right approach could make your retirement much smoother from a financial standpoint.
But some of the Social Security filing strategies you might think are wise are actually anything but. Here are a few you may want to tweak or steer clear of.
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1. Filing early and investing your cash
Claiming Social Security before full retirement age (FRA), which kicks in at 66, 67, or somewhere in between, depending on your year of birth, will leave you with a lower monthly benefit for life. But since you can sign up as early as age 62, you might get your money a lot sooner than you would by waiting for FRA.
Now in exchange for getting your money early, you'll take a hit on your monthly Social Security benefits by claiming them before FRA. But what if you're able to invest that money? In that case, there's the potential to more than make up for that hit.
It's a good idea in theory. But what if the stock market goes through an extended bear market? Or what if you happen to just choose the wrong investments? Instead of making back your lost money in the form of a reduced benefit, you might instead lose out financially in a very big way.
Also, holding off on claiming Social Security guarantees you a higher benefit than filing early. So why would you take on the risks of investing when there's a surefire way to end up with more money in your pocket?
2. Filing early when your health is poor
It often pays for people in poor health to claim Social Security ahead of FRA. Doing so could mean getting more money in their lifetime despite a reduced monthly benefit, whereas waiting to take benefits might mean getting a smaller lifetime payout.
This strategy holds up nicely when you only have yourself to think about. But if you're married, it becomes problematic.
The reason? Once you pass away, your surviving spouse will be entitled to a monthly Social Security benefit that's equal to the amount you received each month while you were still alive. If you slash that benefit by filing early, you might leave your spouse to struggle financially in your absence.
3. Delaying your Social Security claim when you're filing for spousal benefits
If you never worked, but are or were married to someone who's eligible for Social Security, you may be entitled to spousal benefits. But once your FRA arrives, you should file for them immediately.
When you're claiming Social Security on your own income record, you'll be rewarded financially for delaying your filing past FRA. But that doesn't happen with spousal benefits. There's no financial incentive to delay a spousal claim past FRA, and waiting could mean losing out on income you're entitled to.
Know the rules
Sometimes, the reason a seemingly sound Social Security filing strategy backfires is due to not really knowing how the program works. And so while reading up on Social Security may not be the most fun way to spend a weekend, the more knowledge you arm yourself with, the better equipped you'll be to make a wise filing decision -- one you don't wind up regretting.
