While some retirees are simply uninformed, others are dangerously misinformed about Social Security. Unfortunately, when it comes to your retirement years, what you don’t know can hurt you. These misconceptions can prevent you from taking the steps that are well within your control to help maximize this important benefit. Here are 10 costly mistakes retirees often make about their Social Security benefits.

Mistake #1: Underestimating your Social Security benefits. Rather than ignoring this retirement resource, you should embrace it. Like many retirees, Social Security will become the centerpiece of your retirement income. You need to understand how to maximize your Social Security benefits during retirement—which will often last for a third of your life. Like most new retirees, you have been paying into Social Security far longer than you have contributed to your defined contribution plans. You need to consider both as critical sources of your retirement income.

Mistake #2: Rushing to collect benefits. You can begin collecting Social Security benefits as early as age 62, but you may not want to: Your benefits will be reduced by 25 percent for life. To get your full payment, you should wait until you reach full retirement age (if you can afford it) – currently 66 for anyone born between 1943 and 1954. For those born between 1955 and 1959, the age gradually rises toward 67. For those born in 1960, it’s 67.

Mistake #3: Not understanding the various ways married couples can integrate their benefits. If you’re married, you can either take the benefit based on your work history, or half your spouse’s benefit. So if you earned more than your spouse did, and have a higher benefit as a result, compare and see which will pay the most.

Mistake #4: Not claiming spousal benefits if divorced. Social Security benefits can be claimed based on an ex-spouse’s work record if married for at least 10 years.

Mistake #5: Not considering your dependents/heirs. Unmarried dependent children under age 18 may qualify to receive benefits worth up to half of your full retirement benefit amount. This can include a biological child, adopted child, stepchild, or dependent grandchild.

Mistake #6: Not planning ahead for taxes. If the sum of your adjusted gross income, nontaxable interest, and half of your 2012 Social Security benefits exceeds $34,000 ($44,000 for couples), up to 85 percent of your benefits may be taxable. You can minimize this expense by using certain tax-saving moves, such as investing in annuities.

Mistake #7: Beware of outside income if taking early retirement. If you start taking benefits before reaching your full retirement age, employment elsewhere can reduce your Social Security checks. After you reach full retirement age, you get your full benefit no matter how much you earn.

Mistake #8: If married, not claiming twice. If you’re a dual-income retired couple, you may be able to claim spousal benefits, then later switch to payments based on your own work record. This scenario could make sense if waiting until a later age would result in higher benefits.

Mistake #9: Not doing your due diligence. You should always read your Social Security statements (either received as paper statements in the mail or online at SocialSecurity.gov/MyStatement) to be sure everything has been reported correctly. Although inaccuracies are uncommon, some scenarios lend themselves to a greater chance of error.

Mistake #10: Not clearing your debts. Social Security benefits are protected from most debt collections, but they can be taken to collect unpaid federal taxes, federal student loan balances, and child support or alimony. Clearing these debts will leave your Social Security benefits untouched.

There are lots of strategies to maximize Social Security. Don’t make these costly mistakes that can affect the quality of your retirement years. Be sure to talk to your financial advisor about the best ways to maximize your Social Security benefits, based on your current situation. It can make all the difference—and possibly add up to thousands of extra dollars—during your golden years.


The Retirement Pros
August 2013