By Paul S. McNulty, CFP®
Though you may have retirement accounts like a 401(k), IRA, or even a pension, Social Security benefits are likely still a big part of your retirement income planning. That’s because Social Security benefits are paid out as long as you live and increase over time to track the rate of inflation growth. But unfortunately, I’ve seen some common Social Security mistakes be made by pre-retirees time and time again. I’ve listed them here so you can avoid the same errors as you near retirement.
Not Researching Social Security
Many retirees assume that Social Security will begin paying them benefits when they turn 65, or when they stop working. But you need to actually file to begin receiving benefits, and I recommend to my clients that you do some research on your options well before then. Your claiming decision can become more complicated if you have been or are married, plan to continue working past age 65, or choose to enter or are forced into early retirement.
A few years before retirement I suggest checking the Social Security website to estimate what your benefits in retirement will be. Fortunately, the Social Security Administration offers a comprehensive website that can provide a benefit estimate and describe your various options for claiming benefits. You may also consider working with an experienced financial advisor who can incorporate your Social Security benefits into your overall financial plan.
Claiming Social Security Benefits Too Soon
Though you can claim Social Security benefits as early as age 62, I encourage many of my clients to wait. That’s because your benefits will be reduced if you claim before your “full retirement age,” which is typically 66 or 67 depending on when you were born. If you can wait even longer, your benefit will increase by about 8% every year until you turn 70. Note that claiming early may be worth considering if you’re facing health issues or if you’re no longer working and need the income today.
Not Understanding Spousal Benefits
If you’re married, the Social Security claiming decision becomes more complex. Spouses can claim benefits on their own earnings record or up to 50% of their spouse’s benefit. Note that your spouse must already be claiming benefits for you to claim off their record.
If you were married for at least 10 years, you can also claim benefits on your ex-spouse’s record if you have not remarried, even if your ex’s current spouse is also claiming the benefit. Also, if your spouse dies, you can begin collecting survivor’s benefits when you turn 60.
Not Incorporating Social Security Into Your Overall Retirement Income Plan
It can be tempting to just claim Social Security benefits when you turn 62 or 65, especially if you’re still working and that money will serve as extra income. However, it’s important to run the numbers on your Social Security benefits as part of a fuller retirement income plan, which should take into account when you want to stop working, how much you expect to spend in retirement, and how much income Social Security, your retirement accounts, and any pensions you may receive will provide. Creating a retirement income plan can be complicated, so, again, consider working with a financial advisor who has been building these plans for clients for years.
Making the Right Social Security Decision for You
Deciding how and when to claim Social Security benefits is just one part of your broader retirement puzzle, which includes when you want to stop working and your other assets and sources of income. We at Boston Metro Advisor can help you put the pieces together. Contact us for a complimentary consultation by calling (781) 995-0253 or emailing me directly at [email protected] today!
Paul McNulty is the founder of Boston Metro Advisor with over 20 years of experience helping people navigate the ups and downs of the economy toward the financial future they envision. His education consists of a Bachelor of Science in business administration from the University of Rhode Island and the CERTIFIED FINANCIAL PLANNER™ (CFP®) professional designation.
Paul’s experience and education have made him a multi-faceted professional capable of assisting people with virtually all their financial needs. His services include every facet of retirement planning, from 401(k) rollover services and income planning to wealth management and estate planning. Paul has been active in his community over the years as a youth sports coach. When he’s not spending time with his wife, Cindy, and their two children, who are both recent college graduates, Paul enjoys reading, playing golf, and fishing. Learn more about Paul by connecting with him on LinkedIn.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.