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5 Social Security Mistakes Seniors Can't Afford to Make
Oct. 5, 2020
Social Security benefits are a retirement investment you accrue during your entire working life, and taking full advantage of them is integral to any retirement planning strategy.
However, many people are unaware of the many misconceptions associated with Social Security benefits. For this reason, it's important to consult a fiduciary financial advisor. These financial experts can take an unbiased look at your retirement plan and help you determine where Social Security benefits fit into your overall strategy.
A 2019 Northwestern Mutual study found that U.S. adults who work with a financial advisor report “substantially greater financial security, confidence and clarity than those who go it alone.”
The value of working with a financial advisor varies by person and advisors are legally prohibited from promising returns, but research suggests average additional investment returns can range from 1.5% to 4% more each year.
SmartAsset’s new tool makes it easy to find the right financial advisor near you in just a few minutes. Our exclusive, no-cost tool matches you with up to three local fiduciary financial advisors that have passed a rigorous screening process. We confirm each is registered with the U.S. Securities and Exchange Commission (SEC) or the appropriate state regulator, possess the proper licenses and have no pending or valid regulatory disclosures within the past 10 years.
If you’re approaching full retirement age, you’ll soon be eligible to collect your Social Security benefits. Be sure to avoid these common pitfalls that could substantially affect how much you receive.
1. Not maximizing your earnings
Your Social Security benefits are directly correlated to how much you pay into the system, so it’s important to earn as high a salary as possible throughout your career. In 2019, employees will pay 6.2% tax on up to $137,700 of wages.
2. Working less than 35 years
The government calculates your final benefit amount based on your lifetime earnings, averaging your salary over the course of the 35 years when you made the most. Since salaries change over time, the SSA refers to the Average Wage Indexing Series, but factors in zeros for every year you are short of the 35-year mark.
3. Accepting Benefits As Soon As They're Available
The earliest you can start receiving Social Security is 62 years old, and you’ll lose 30% of the benefits for that year. Your benefits at age 62, 66 or 67 are not your maximum benefits, though. Benefits increase by 8% per year every extra year you wait until the maximum benefit kicks in at age 70.
4. Not considering your spouse’s benefits
You can delay claiming your own benefits and reap half of your partner’s payout if your marriage (current or not) has lasted for a minimum of 10 years (although several conditions apply). This can be beneficial if your spouse was a higher earner, since the calculation for spousal benefits will be based on the spouse’s salary. Widows and widowers are also able to benefit from a spouse whose earnings were higher.
5. Not planning with a financial advisor
Financial advisors are well-versed in Social Security planning and can help you determine when is best to elect your benefits and how to avoid tax traps. They can also help you figure out exactly how your benefits fit into your retirement income equation. Depending on how much you receive, this could help you rely less on tax-advantaged accounts, allowing them to continue compounding interest.
Chances are, there are several highly qualified financial advisors in your town. However, it can seem daunting to choose one.
Our no-cost tool makes it easy to find the right financial advisor for you. Now you can get matched with up to three local fiduciary investment advisors that have been rigorously screened for regulatory disclosures and to confirm their licenses. The entire matching process takes just a few minutes.
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Investing involves risk and no situation is the same. This is in no way intended as a personal recommendation and investment decisions are solely those of the reader.
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