With roughly 70% of Americans making major mistakes when filing for Social Security and as a result, leaving hard-earned money on the table, here are four things to think about BEFORE you file for your benefits.
An easy acronym to remember these strategies is; LENS which stands for Life Expectancy, Employment, Need, and Spouse. Keep each of these factors in mind and make sure that you’re considering each of them prior to filing for your Social Security.
If you don’t have solid answers on all four of these, before you file, make sure that each of these factors have been properly considered because they will affect the benefits that you and your family are entitled to. And again, Social Security is a lifetime benefit so making the right decision is of paramount importance.
One significant common trap many fall into is underestimating their life expectancy. So when planning for Social Security try to be a bit optimistic as it’s generally wise to use a slightly higher life expectancy from a planning perspective. This is because Social Security is a lifetime benefit so it’s important to accumulate as many Delayed Retirement Credits as possible, in-line with your broader Social Security strategy. So that over the long-term you receive the highest monthly benefit for the longest period of time.
Let’s move onto another common mistake that trips up what are otherwise good intentions: Working while collecting Social Security.
First of all, the Earnings Test as it’s called applies to anyone under Full Retirement Age. The Earnings Limit for 2016 is $15,720 per year and this Earnings Limit is adjusted annually for inflation. In the year that you reach your Full Retirement Age, but before your birthday that year, you have a bit more flexibility because the Earnings Limit increases to $41,880.
Once you have reached your Full Retirement Age, the Earnings Limit disappears entirely so you can earn as much money as you’re able to and not worry about the earnings test. So what happens when you work and you are receiving Social Security? Well, that’s when the Earnings Test can apply assuming you’re under your Full Retirement Age as mentioned.
If you absolutely need the money and have no other options, then you may need to claim your Social Security early, but if you don’t need the money immediately, be sure that you develop a plan to maximize your Social Security benefits.
There are many strategies to maximize your benefits regardless of whether you’re single, married, divorced, or a survivor and you’ll thank yourself later that you took the time do this. This one critically important retirement decision will remain with you the rest of your life, so be sure to get it right. And because Social Security is so complex with 2,728 rules, we always recommend working with a Social Security advisor that can assist you.
As a reminder, here is a quick glance again at the Full Retirement Age chart for those with a Full Retirement Age of 66 which is most people. As you can see, at 66 you receive 100% of your Full Retirement Age amount and 132% of that amount at age 70. Keep in mind though, and especially for married couples, those that are divorced, or are survivors, there are ways to increase this even further by implementing some of the other creative Social Security strategies that are available.
When claiming YOUR Social Security don’t think about yourself and make the mistake of failing to coordinate spousal benefits. This is a very common error that many make and it’s a costly one. Making this mistake along can easily cost you on average $40 to $50k in spousal benefits.
This same concept also applies to survivor benefits. If you make a mistake when it comes to your spousal benefit strategy, your eventual survivor benefit can also be impacted and can cost another $70k to $80k on average. Be careful when implementing your selected strategy and keep in mind that it is the higher earner that needs to be the most careful because it is the higher earner’s benefit that will be inherited by the surviving spouse.
The Bottom Line
Properly coordinating and timing benefits is critical for everyone that needs to claim Social Security because of the importance of pursuing strategies that maximize spousal benefits, increase delayed retirement credits, and avoid some of the pitfalls that are far too easy to make without the proper guidance and understanding.
Whether any of the strategies above are right for you requires careful analysis as each situation is different.
Working with a knowledgeable Social Security advisor such as the service offered by SocialSecurityAdvisors.com is highly recommended given the complexity of the rules and that expert advice is critical when determining how best to maximize your Social Security.
Until next time,
Matthew Allen is the Co-Founder/CEO of Social Security Advisors and creator of the new course Maximizing Your Social Security produced in conjunction with Weiss Educational Services. Matthew has helped thousands of seniors maximize their Social Security benefits and avoid costly mistakes when filing. Matthew has been at the forefront of financial services for over a decade. In addition to co-founding Social Security Advisors, Matthew also founded The Universal Group of Companies, a private investment firm, in 2004. From 2000 to 2004, Matthew was a NYSE Market Maker with LaBranche & Co., a Fortune 500 New York Stock Exchange firm.