Claiming Social Security is one of the most important financial decisions of your life. The choices you make can have a lasting impact on your retirement income, taxes, and even your spouse’s benefits.
If you’ve earned an average income over your career, you could receive several hundred thousand dollars in lifetime benefits. And if you’ve earned an above-average income, you could collect well over a million dollars. That’s a sum so significant you simply can’t leave it to chance.
But Social Security is complicated. There are thousands of rules, and even more rules about those rules. Many people make costly mistakes that reduce their benefits and increase their taxes. To help you make the most of your Social Security, here are four essential things you need to know before filing.
1. Don’t Rely on a One-Size-Fits-All Strategy
The timing of when you claim benefits affects more than just the amount you receive each month. Your decision could also trigger higher taxes, double your Medicare premiums, and cause you to forfeit a small fortune in spousal benefits.
Some retirees assume delaying benefits is always the best move, but that’s not necessarily true. In some cases, claiming your Social Security benefits early could yield far more income when you consider your benefits, taxes, etc. Depending on your tax situation, other income sources, and life expectancy, claiming earlier could result in more lifetime income. The right strategy depends entirely on your personal financial situation.
2. You Could Be Taxed on Up to 85% of Your Benefits
One of the biggest Social Security “gotchas” is taxes. Depending on how and when you claim benefits, up to 85% of your Social Security income could be taxable. That means the money you were counting on for retirement could be significantly reduced once the IRS takes its share.
Strategic tax planning can help minimize that impact. By coordinating withdrawals from tax-advantaged accounts or spreading out income sources, you may be able to reduce the percentage of your benefits subject to taxation.
3. Your Spousal Benefits Could Be at Risk
Most people don’t understand how to make the most out of their Social Security spousal benefits. And with so many variables at play, it’s no wonder! No matter your current marital status – married, divorced, or widowed – spousal benefits can significantly impact your total retirement income. The timing of when you and your spouse claim benefits matters. Be sure to consider all of your options before making a final decision.
4. Don’t Rely on the Social Security Administration for Advice
The Social Security Administration (SSA) provides a number of valuable resources, but their representatives simply aren’t financial advisors. They’re there to communicate facts and policies, not to help you maximize your benefits.
We’ve heard plenty of stories about people who file for benefits at the direction of the SSA and end up short-changing themselves or their spouses hundreds of thousands of dollars. It’s extremely unfortunate when this happens, and we want to do whatever we can to prevent things like this from happening. Financial professionals like Secured Retirement exist to lay out all the options. Make sure you understand yours.
Ensure You Make the Right Choice
Claiming Social Security is more complex than most people realize. Your decision impacts many other aspects of your financial game plan, like your tax liability, Medicare costs, and spousal benefits.
Rather than guessing about what you need, get a customized Social Security analysis from a qualified financial advisor, like Secured Retirement. Call us today and get started on your analysis: 952-460-3290.
