Most people don’t realize it, but claiming your Social Security benefits could be one of the most important financial decisions of your life. Here’s why.
If you’ve earned an average income throughout your career, you could receive several hundred thousand dollars in lifetime benefits. And if you earned an above-average income, you could receive more than a million dollars in benefits.
That’s enough money to get Warren Buffet’s attention.
But claiming your benefits is complicated and confusing. There are thousands of rules, and even more rules about those rules. And even the most sophisticated investors make mistakes that cost them a small fortune.
Below, are 4 things you must know before claiming your Social Security benefits.
#1 Don’t rely on a one-size-fits-all strategy
The timing of when you claim your benefits impacts more than the amount you receive in benefits. Your decision could also trigger higher taxes; double your Medicare premiums; and cause you to forfeit a small fortune in spousal benefits.
In some cases, claiming your Social Security benefits early could yield far more income when you consider your benefits, taxes, etcetera, which is contrary to traditional thinking.
#2 You could be taxed on as much as 85% of your benefits
This is one of the big social security “gotchas” that most folks never see coming. Depending upon how and when you claim Social Security, you could pay taxes on as much as 85% of your benefits. So, now the money you were counting on to help support you in retirement, could be a fraction of what you thought it was going to be.
#3 Your spousal benefits could be at risk
According to US News, “Most people don’t understand how to make the most out of their Social Security spousal benefits.” There are so many variables, it’s easy to lose out on thousands of dollars in benefits every year that are rightfully yours.
The bottom line – don’t make the decision to claim your benefits without considering the impact on your spousal benefits (even if you’ve been divorced).
#4 Don’t rely on the Social Security Administration for advice
The advice you get from the Social Security Administration is often wrong.
Forbes details a story about a successful businessman who reached full retirement age at 66. He filed for his benefits when Social Security Administration told him to. But this decision short-changed his wife “hundreds of thousands of dollars because he didn’t understand his options. They author went on to say, “I thought to myself, here is a smart, successful man who wanted to take care of his wife; if he can’t figure this out, who can?”
I wish this were an isolated case, but we hear similar stories all the time here in Minnesota.
Here’s how to ensure you make the most out of your benefits
This decision is a lot more complicated than most people realize. And it impacts many other aspects of your financial game plan.
Take the guesswork out of this critical decision by getting a customized Social Security analysis for your specific situation from a qualified financial advisor. And make sure they consider all implications of this decision including your benefits, taxes, Medicare premiums, spousal benefits, etcetera. If you want our help, we provide this customized analysis as a free service.
Let us know if you have any questions.
We’re always here to help! Just call us at (952) 777-1818.