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Many people mistakenly believe that retirement is the only thing standing between them and their Social Security money. What they don't realize is that the amount of money they'll actually have in retirement depends on how strategic they are about collecting that benefit.
Sadly, far too many people close to or in retirement are missing out on hard-earned savings that should be theirs because of a few innocent but costly mistakes that can result in hefty penalties.
To help you avoid this problem and enjoy your maximum benefit, here are six common errors to avoid.
1. Retiring too early
Just because you can retire and start collecting Social Security benefits as early as age 62 doesn't mean it's a good idea.
"A worker can choose to retire as early as age 62, but doing so may result in a reduction of as much as 30 percent," the Social Security Administration states. "Starting to receive benefits after normal retirement age may result in larger benefits. With delayed retirement credits, a person can receive his or her largest benefit by retiring at age 70."
There are instances when retiring at 62 or before age 70 may make more sense. The best way to determine what's right for you is to speak to a financial planning expert.
2. Earning too much after you collect early benefits
Perhaps you decide to claim your benefits before your full retirement age but you continue to keep working. Depending on how much you earn, you might be cutting into those yearly benefits.
The Social Security Administration has stiff penalties if you claim benefits prior to full retirement age and then continue to work. The earnings limit for 2023 is $21,240. For every $2 you earn above that threshold, the government will take $1.
In the year you reach full retirement age, the government will deduct $1 for every $3 you earn above a different limit. The limit for 2023 is $56,520, but this only applies to your earnings up to the month before you retire.
Once you reach full retirement age, there's no longer a limit on how much you can earn.
3. Not understanding how benefits are calculated
Your monthly benefit amount is based on the wages you earned during your 35 highest-earning years, financebuzz reports. "The longer you work and the more money you make, the greater your Social Security benefits will be. Conversely, if you take time away from the workforce or experience a salary decrease, you could receive less from Social Security when you retire."
Your monthly benefit amount decreases if you claim benefits prior to your full retirement age. Likewise, you should verify your earnings history with the Social Security Administration. If there are missing years that can also diminish your benefit.
4. Not signing up for Medicare at the right time
This is an easy mistake to make because the window for signing up for Medicare is fairly short and, unlike your dentist, the government won't send you a reminder card in the mail. You've got to sign up for Medicare at the right time to avoid incurring late enrollment penalties. Generally, the window starts three months before you turn 65 and ends three months after the month you turn 65.
According to the Medicare website, late enrollment penalties are added to your monthly premium and are not a one-time late fee. They're charged as long as you have that coverage, which could be for the rest of your life. Plus, the longer you wait to sign up, the higher the penalty will be.
5. Failing to consider taxes on your Social Security benefits
Many people erroneously believe that Social Security benefits aren't counted in taxable income. Depending on your income level, you could owe taxes on up to 85% of your benefit, the Social Security Administration explains. Single filers must pay on Social Security if their income is above $25,000 or $34,000 for married couples filing jointly.
In addition to federal taxes, AARP notes that 12 states also tax Social Security benefits. Utah is one of those states.
6. Trying to figure out your retirement plan on your own
Unfortunately, this list barely scratches the surface on common Social Security mistakes. Attempting to figure out your retirement plan on your own could cost you tens to hundreds of thousands of dollars. The best way to maximize your benefit is to work with a financial expert who can help you create an effective retirement strategy to suit your personal circumstances.
With B.O.S.S. Retirement Solutions, your financial future is in good hands. To start planning for your retirement, download a free guide today.
B.O.S.S. Retirement Solutions is a four-time winner of Utah's Best of State Award. Tyson Thacker and Ryan Thacker are the President and CEO of B.O.S.S. Retirement Solutions with seven offices throughout Salt Lake City.
Advisory services offered through B.O.S.S. Retirement Advisors, an SEC Registered Investment Advisory firm. Insurance products and services offered through B.O.S.S. Retirement Solutions. The information contained in this material is given for informational purposes only, and no statement contained herein shall constitute tax, legal or investment advice. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual's situation. You should seek advice on legal and tax questions from an independent attorney or tax advisor. Our firm is not affiliated with the U.S. government or any governmental agency.
