Many seniors today are heavily reliant on Social Security to cover their basic living costs. And chances are, those monthly benefits will play a huge role in your retirement finances, too.
That's why it's so important to have a solid plan when it comes to claiming Social Security. Unfortunately, though, you might risk making one of these mistakes that retirees are known to fall victim to.
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1. Filing for benefits too soon
Age 62 is the earliest age you can sign up for Social Security. But if you want your complete monthly benefit based on your individual income history, you're going to have to wait until full retirement age . That means sitting tight until age 66, 67, or somewhere in between, depending on your year of birth.
Now you may not be motivated to wait until full retirement age when there's the possibility of getting your money much sooner. But a filing at age 62 could leave you with up to 30% less Social Security income each month. And that could make retirement much more financially stressful.
Before you claim benefits ahead of full retirement age, do an assessment of your savings and be honest about how much income you'll get from your IRA or 401(k) plan . If it's not a lot, then holding off on Social Security past 62 -- and, ideally, until full retirement age -- is probably a safer bet.
2. Delaying benefits when they're in poor health
Although full retirement age is when you can collect your complete monthly Social Security benefit, delaying your filing beyond that point could lead to a boosted monthly benefit. Specifically, you'll grow that benefit by 8% for each year you hold off on claiming it, up until your 70th birthday.
Delaying Social Security makes sense in a number of situations. It's a smart thing to do when you have little to no savings, and it could pay off if you're in great health and are likely to live a long life. But if your health is poor and you expect a shortened life expectancy, then delaying your Social Security claim to age 70 is one the worst financial mistakes you might make.
While signing up for Social Security at 70 might leave you with more money on a monthly basis, you risk losing out on lifetime income. So be honest about how you're doing health-wise. And also, take your family history into account.
If your parents and grandparents didn't make it past their mid-70s, and your health in your 60s is similar to what theirs was like, then that's a sign that a delayed filing probably isn't best for you. You may even, in that case, want to claim Social Security early to increase your chances of getting more lifetime income from it.
3. Forgetting about the do-over option
Age 62 is a pretty popular age to sign up for Social Security. But many seniors file at that point, see how drastically their monthly benefits are reduced, regret that move, and do nothing about it.
Now you may be thinking, "Well, what can they do about it?" But actually, Social Security gives all filers one do-over in their lifetime. So if you claim benefits at 62 and then decide that wasn't the wisest move, you can undo your filing and repay those benefits within a year to get a chance at a later filing down the line.
Of course, if you're going to use this option, you'll need a backup income plan -- money to replace the Social Security benefits you'll stop getting once you undo your claim. But if you can work that out, you can potentially set yourself up with a much higher benefit later on.
It's important to think carefully before claiming Social Security and know exactly how the program works. Read on up Social Security to avoid these and other costly mistakes that could cause you to lose out on money or make your retirement more difficult than it should be.
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