When you are planning your retirement, it is highly likely that Social Security benefits will play a central role in your plans. Unfortunately, many retirees make mistakes with their Social Security that stops them from being entitled to the amount of money that they need. Many people are unaware of how the way they are planning their Social Security benefits may be causing more harm than good. Fortunately, learning more about the process of Social Security benefits planning now can help you avoid certain mistakes that could cost you in the future. In this blog, we will go over the most common mistakes made with Social Security benefits, and how you can avoid them.
Claiming Too Early
There are not very many circumstances in which it makes sense to claim your Social Security Benefits before your full retirement age (which is determined by the year of your birth). If, unfortunately, you are in poor health and have reason to believe that you will not live as long as your peer’s life expectancy, then you may want to claim benefits early in order to have more money during the time you have left. Additionally, if you are in desperate need of money, it makes sense to claim your Social Security benefits right when you can at age 62; if claiming it is the difference between buying food and starving, you should absolutely claim Social Security.
However, beyond these extreme circumstances, it is best to leave your benefits alone as long as possible. This is because if you take them early, you are seeing a 30 percent drop in your benefits. Every year you wait between age 62 and 70 to start collecting Social Security, your benefits rise by 8 percent. If you can afford to wait until age 70 to collect Social Security, you could get far higher monthly benefits.
Additionally, when you take your Social Security benefits early while you are still working, you face repercussions. If you do this, your benefits are reduced by one dollar for every two dollars you earn over 15,720 dollars. This deduction is not taken little by little; it is taken upfront. So instead of it reducing the overall amount of benefits you get in a year and distributing it month by month, you will go months (depending on how much is deducted) without a Social Security payment before you start getting your benefits. This is why you should seriously consider not claiming your benefits too early.
Aiming for the Wrong Retirement Age
Make sure that you know what your full retirement age is before making any plans. You can find a chart here that outlines the different full retirement ages according to the year you were born. However, even this chart may be inaccurate by the time you wish to retire. Now that more and more people are living longer and longer, there is a talk of raising the full retirement age, as the Social Security Trust Fund is quickly being depleted and the program has some serious issues. Keep an eye out to make sure that you are accurately planning your retirement with the right age in mind to ensure that you do not cause yourself financial hardship in the future.
Don’t Rely on Social Security as Your Only Income
Social Security simply should not be your only source of retirement income, as should be obvious by the issues outlined above. Particularly for younger people reading this, it is possible that Social Security will no longer be a program by the time you retire. Therefore, it is imperative to diversify your retirement income to ensure that you can survive on your earnings. It is a good idea to just pretend that Social Security doesn’t exist when you are making your retirement plan. Try alternative methods for saving money. One of the best things you can do is put money into a Roth IRA, 401K, or IRA. Additionally, you may try buying properties and renting them out for an additional monthly income that can help you through retirement. You could also consider starting a business that would be self-sustaining after you retire. Regardless of how you do it, it is imperative to save for retirement without consideration of Social Security.
At advisorRETIRE™, we are aware that a lot goes into retirement planning, and coming up with a succession plan for your financial advisor business may be low on your list of priorities as you keep putting it off. However, a succession plan is essential to protect yourself, your assets, and your clients, and it is better to implement one now than wait and be forced to delay your retirement. If you need assistance with the succession planning process, we can help. We are experts in succession planning and can help you design, implement, and execute a plan that will benefit you and your business. Contact us today to learn more!