Social Security is a big deal, as it generates much of many retirees' income. Thus, as you plan for how you will get by in retirement, be sure to learn more about Social Security -- how to maximize the money you'll get from it and how to steer clear of blunders. Following are three top Social Security mistakes you can avoid.
Selena Maranjian: One big Social Security mistake to avoid is assuming that your Social Security benefits will be enough -- or close to enough -- to support you in retirement. It's true that they do largely support many people, but that's often not in the most comfortable fashion. To be precise, per the Social Security Administration (SSA) itself, "Social Security is the major source of income for most of the elderly." About 90% of those 65 or older collect Social Security benefits, which represent about 39% of elderly people's income. Clearly, lots of people are receiving ample income from other sources in retirement, but the majority of elderly beneficiaries get 50% or more of their income from Social Security, while 22% of married elderly beneficiaries and 47% of unmarried ones get fully 90% or more of their income from Social Security.
So how much, exactly, are these folks collecting, and how much might you expect to collect? Well, as of a few months ago, the average monthly retirement benefit was $1,344, which comes to $16,128 per year. That probably won't seem like sufficient retirement income to you, but remember that if you received higher-than-average earnings during your working career, you'll collect higher-than-average benefits. Still -- there's a limit to those, too. The overall maximum monthly Social Security benefit for those retiring at their full retirement age was recently $2,639 -- or about $32,000 for the whole year, which is likely still not seeming like a princely sum to you. Want more? Delay starting to collect benefits until age 70, and the maximum (for 2016) is $3,576, or nearly $49,000 annually.
If the numbers above don't alarm you either because they seem sufficient or because you know you will have plenty of retirement income coming in from other sources, that's good. But if they have you worried, you can take steps now to better your financial condition. Save more aggressively and invest more effectively (perhaps moving more long-term money into the overall stock market instead of accepting what is likely to be slower growth in CDs or bonds). Take advantage of tax-advantaged retirement accounts such as IRAs and 401(k)s. Consider delaying retirement for a few years if need be, or taking a second job temporarily. Approach retirement with a good plan for how you'll meet your financial needs.
Dan Caplinger: One mistake that many older Americans make in their rush to file for Social Security benefits as early as possible is not considering the impact of work income on what they receive from the Social Security Administration. Under current law, if you haven't reached full retirement age and earn above a certain amount of income from a job, then the SSA will make you forfeit a portion of your benefits. For 2016, the relevant limit for someone who won't reach full retirement age this year is $15,720, and the SSA will take away $1 in annual benefits for every $2 you earn above that amount during the year. A higher threshold of $41,880 applies to those reaching full retirement age in 2016. They'll lose $1 for every $3 they make above that limit.
What this means is that if you're still working full-time at a high-paying job and hope to take Social Security to supplement your income, filing early won't necessarily give you any benefits at all. If you forfeit all of your benefits for a given month, the SSA treats you as if you had filed for benefits a month later, giving you credit for waiting the extra month and slightly increasing your future monthly payments. However, it's easier just to forego filing in the first place if you anticipate having a large portion of your benefits taken away.
Chuck Saletta: One of the most easily avoided mistakes you can make when it comes to Social Security is waiting past age 70 to start claiming benefits. You can start receiving Social Security retirement benefits at any time once you reach age 62. The longer you wait to get started between age 62 and 70, the higher your monthly benefit will be. If you wait past age 70, however, your benefit stops growing, and there's no benefit for further delay.
If you're still working past age 70 or have another decent source of income such as a pension or investments, it's true that up to 85% of your Social Security benefit may be subject to income tax. Still, it's better to get that income and lose some of it to taxes than to get none of that income at all. So if you're age 70 or better and haven't yet claimed your Social Security benefit, go ahead and sign up today.