6/18/2012 2:43 PM ET|
7 Social Security sins
You want to maximize your benefits, of course, but how do you do that? First, you avoid -- if you can -- some costly missteps.
Since the first payment was made in January 1937, Social Security has provided a safety net and source of reliable income for retired workers, their spouses and dependents. But getting the most from your Social Security benefits is far from simple.
While you can begin collecting Social Security as young as age 62, your benefits will be smaller than if you had waited to full retirement age (66) or later. But while waiting longer can mean more money monthly, it may result in less money overall if you die early, so selecting the right age to file is a critical component to maximizing your benefits.
Kevin Worthley, a certified financial planner with the Retirement Co. of New England, says it is important to make the right decision about when to file because there are almost no second chances when it comes to Social Security.
"There used to be a strategy called a do-over where recipients could receive benefits early, then years later withdraw their application, repay the benefits received and then reapply for benefits going forward at a higher payout," Worthley says. "The technique was overly promoted and somewhat abused, so the Social Security Administration curtailed the technique recently by only allowing a do-over if implemented within 12 months of the original receipt of income benefits."
So to get it right the first time, avoid committing these seven Social Security sins.
1. Waiting past age 66 to file
Even if you don't intend to collect benefits until after age 66, don't forget to file by the time you reach full retirement age. If you don't wish to collect at that time, simply indicate that you want to suspend your benefits so they can keep growing.
Failing to file by 66 negates the possibility of earning a full lump-sum repayment if you later decide you'd rather have collected those suspended benefits (such as might occur if you suffer health problems in your late 60s). In that scenario, the lump-sum option will award you all you would have collected to that point at once, but this works only if you filed on time.
In addition, using a "file-and-suspend" strategy can also allow your spouse to begin collecting benefits while you continue working.
2. Waiting past age 70 to collect
There is a financial incentive for seniors to delay collecting Social Security past their full retirement age. For each year they wait, their benefits get a bump of between 5.5% and 8%. However, there are no additional benefits for waiting past age 70. At that point, any further delay in collecting simply means money lost.
3. Neglecting spousal benefits
Social Security offers several options for spousal benefits, so don't miss this opportunity to bring in some extra cash if you or your spouse is eligible. For example, if you are collecting benefits and your spouse is at least 62 and isn't collecting benefits, your spouse is eligible for a separate spousal benefit. The beauty of this arrangement is that it doesn't diminish your benefits in any way.
"In addition, a spouse who has reached full retirement age and whose spouse is already receiving a benefit can claim a spousal benefit while continuing to work and letting his or her own benefits grow for the future," says Worthley.
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was right; it would take 10-12 years to make up what you lost by postponing your benefits a year or two just to get a couple hundred more a month.A freind of mine who has a Masters in Math and was an accountat pointed that out to me.Even tho he could afford to wait he did not.I took his advice and am
I turns out that if I start at 62, 64, or 66 (I turn 62 in October), I would have collected the same amount (in 2012 dollars) right around my 78th birthday. Additionally, since up to half of your SS is taxable if you have over $25K (single) or $32K (married), the extra income from waiting is 50% taxed if your income is above those levels. So it may be into your 80's when the "take home pension" at 66 matches up with that at 62.
Another factor is that studies show people spend more money in their 60's & 70's then their 80's. Personally, I know I'll be doing much less traveling, etc. in my 80's than between 62-66. I still want to climb Mt. Kilimanjaro, hike the Inca Trail to Machu Picchu, ride on a turtle on the Galapagos, hike through the jungles of Yucatan to see the Mayan ruins, etc. So I'm going to start collecting at 62, knowing my total income will still be enough to keep me comfortable in my 80's.
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