Most people understand the basics of how Social Security works. The US Government takes money out of each of your paychecks during your working years, and then when you retire, they give money back to you in monthly payments. However, most people are not aware that there are dozens of different strategies that a couple can utilize when they start to receive their Social Security benefits. Each strategy resulting in a different benefit amount, and the difference can add up to hundreds of thousands of dollars over a lifetime.
Better educating yourself about Social Security will help you to avoid some of the following errors and maximize how much you receive from Social Security.
Mistake #1: Not paying attention to your earnings record. Many retirees do not realize that your Social Security income is based on a 35-year average of all your earnings. This means that if you don’t work at least 35 years then Social Security gives you zeros for those years you missed. This has an obvious negative impact on your average earnings and, as a result, also reduces your benefits. In order to make sure this doesn’t happen to you check your earnings history to make sure that you have at least 35 years of covered earnings. If you don’t, consider working for a few more years so that your 35-year average doesn’t have any zeros factored into the equation. This information can be found on your most recent Social Security Statement. You should receive one every year, about 3 months before your birthday. If you have more than 35 years of covered earnings, the good news is Social Security uses your 35 highest years to produce an average.
Mistake #2: Not knowing your rights as a divorced spouse. If you were married to your ex-spouse for at least 10 years, then you are entitled to receive Social Security benefits based on their earnings record. This will not affect the benefits that your ex-spouse receives. Additionally, it doesn’t matter if your ex-spouse has multiple ex-spouses. The key here is you have to have been married for the minimum of 10 years. Also, eligibility for spousal benefits based on your ex-spouses benefits cease when you are remarried.
Mistake #3: Claiming spousal benefits too early. As a Spouse you are entitled to Social Security income that’s the greater of the benefit based on your own earnings record, or the benefit based on half of your spouse’s benefit (called the spousal benefit). However, watch out for these tricky rules… If the spouse files for benefits before their Full Retirement Age (FRA, currently age 66), then Social Security will automatically pay the greater of the two amounts described above. But if the spouse waits until the FRA to file for benefits, then he or she can just start the spousal benefit and let the benefit based on his or her earnings grow through delayed retirement credits. Spouses can then elect to start the benefit based on their earnings a few years later, if that would be advantageous.
Mistake #4: Not knowing which distribution method will best maximize your benefits. As we said earlier, there are dozens of different strategies that may be used to maximize your personal Social Security benefits. Like everything in the world of financial planning, Social Security benefits are definitely not one-size fits all. Because of this, one of the services we offer is a Social Security Benefits Maximization Valuation. As part of this service we will meet with those who are close to retirement (age 60-65) and determine which method will help them receive the most from Social Security. If you have already started receiving Social Security, don’t worry, we may still be able to help you maximize your benefits as well.
Although there is a fee for this service, our clients find the cost more than worth it, considering the potential increase in benefits they may receive. Also, the initial consultation, where we determine if we can actually help you, is free. To schedule your Social Security Maximization Valuation, or if you have any questions regarding your Social Security benefits contact us at 480-422-8522.