Overlooking key strategies in claiming Social Security can significantly diminish your retirement benefits.
Story Highlights
- Coordinating Social Security claims with your spouse is crucial for maximizing benefits.
- Performing a break-even calculation helps determine the optimal age to claim benefits.
- Continuing to work at your peak earning years can prevent shrinking your average wage.
- Avoiding common Social Security mistakes can bolster financial security in retirement.
Importance of Coordinating with Your Spouse
For married couples, claiming Social Security without strategic coordination can lead to regret. Many strategies exist for maximizing combined lifetime benefits, but errors like claiming early as a high earner can reduce survivor benefits. Typically, a lower earner might claim benefits earlier to start receiving checks without heavily depleting retirement funds. Later, the lower earner can switch to spousal benefits when the higher earner claims. Exploring all possible strategies with your spouse is crucial for maximizing inflation-protected benefits.
If you don’t want to be one of them, be sure to avoid these three common Social Security errors that could end up costing you.
The Necessity of Break-Even Calculations
Neglecting to perform a break-even calculation can be a costly mistake when deciding when to claim Social Security. Benefits decrease if claimed before Full Retirement Age (FRA) and increase if delayed. When choosing between claiming ages, calculate how long it takes to recoup the benefits from a delayed claim. For instance, a standard $2,000 monthly benefit reduces to $1,400 if claimed at 62 with an FRA of 67. It would take 16.6 years to break even on the missed checks at this rate. If you expect a longer lifespan, delaying your claim increases lifetime income.
If you don’t think you’d live long enough, and you aren’t worried about shrinking survivor benefits, you’d be a lot better off claiming early. If you think you’d live more than 16.6 years after claiming, a delayed claim would make sense since it would generate more lifetime income.
Impact of Shrinking Your Average Wage
Claiming Social Security without considering your current earning potential may reduce your average wage. Benefits depend on the average wages over 35 years. If you haven’t worked for 35 years or if current earnings are significantly higher, continuing to work can boost benefits by replacing low or zero-wage years with higher earnings. Ensuring you maximize your current earnings before claiming can significantly enhance your Social Security benefits, leading to a more secure financial future.
By avoiding these mistakes, you could end up boosting your Social Security benefits considerably and having a much more secure future because of it.
