Social Security Traps That Cost You Money
Most people assume that Social Security will take care of them when they retire; however, some things that people do jeopardize the amount of their Social Security benefit because they do not fully understand all of the rules and regulations about Social Security. These Social Security traps can hurt you and your spouse’s financial well-being. Learning about Social Security traps and how to avoid those traps are the best way to ensure that you are fully prepared for your retirement.
Three Social Security Traps to Avoid
Social Security Trap Number 1: Taking Money Too Early
It seems each year that the Social Security Administration raises the age for retirement. Currently, the age for full retirement benefits is 67; however, you can retire at age 62 but with penalties. If you retire at age 62, you only receive 70% of your Social Security benefits. This will last for five years until you reach the full age of retirement at 67. However, you receive several benefits if you wait until 67 to retire. First, if you wait until your full retirement age, your monthly benefit will be larger. Second, if you continue to work after the age of 62 and contribute to the Social Security fund, you will receive a higher monthly benefit than you would have received if you quit work at age 62. Third, the SSA calculates the cost of living adjustment (COLA) on the amount of your monthly benefit. If you decide to take your Social Security benefits at the age of 62, your COLA will be less than if you wait until 67 to begin receiving benefits.
Social Security Trap Number 2: Working Income
The Social Security Administration does permit individuals who are 62 years of age to begin receiving benefits while continuing to work; however, there is a penalty. If you decide to take your Social Security benefits beginning at age 62 while you are still working, your monthly benefit will be reduced. In 2015, the reduction rate is $1 for every $2 of earned income above $15,720. This reduction continues, based on your earnings from employment until you reach the full age of retirement. The good news is that your benefits are not lost – they are simply deferred and credited to your account until you reach full retirement age.
Social Security Trap Number 3: Spousal Benefits
For married couples, the decision about when to begin receiving Social Security benefits can affect both spouses. For example, when you pass away, your spouse has the right to collect your monthly benefits if those benefits are more than the benefit your spouse is eligible to receive in his or her own right. By choosing to take your benefits earlier than the full retirement age may cause your spouse to receive a smaller monthly benefit than he or she may have been entitled to receive if you had waited until your full retirement age to begin receiving your benefits. Furthermore, if you wait until your full retirement age (currently 67) to claim your benefits, you may claim the benefits but continue working. This allows your spouse to claim spousal benefits while you continue to work to increase the monthly benefit of your future benefits.
What You Need to Know About Social Security Benefits
Before making any decisions about your Social Security benefits, it is important to consult with a retirement specialist or Social Security attorney who can provide you with assistance as you navigate the confusing regulations and rules of the Social Security Administration. Having someone who understands these rules and regulations will help you make the choice that is in your best interest.
In an ideal situation, retirees should plan to use their Social Security benefits in conjunction with their retirement savings and other retirement income. Planning for retirement should also include evaluating your current health, your family’s health history, your family’s longevity, and how long you intend to continue working. Working with a retirement planning specialist can help you determine when you need to begin using your Social Security benefits to supplement your income so that you do not run the risk of depleting your retirement funds before the end of your life.
Does Wisconsin Tax Social Security?
No, the benefits of Social Security are not taxable in Wisconsin. That's one less thing to worry about.
Things You May Need to Do Right Now
In order to protect you and your spouse, there are several steps you can take right now to plan for your future.
• Meet with a financial planner to discuss your current retirement accounts. Discuss if you need to increase retirement savings so that you have sufficient funds in your retirement account when you retire.
• Begin discussing at what age you intend to retire. This age will affect how you will use your retirement benefits, including Social Security, to pay your bills and living expenses during retirement.
• Discuss private insurance options with a specialist in order to learn what your options will be for insurance if you retire at age 62, 67, or 70. This could make a huge impact on deciding how long to continue working.
• If your financial planner does not appear to understand Social Security, consider meeting with a Social Security attorney who understands the rules and regulations and who can give you the information you need to make an informed decision.
• Discuss your goals and desires with your spouse. Both of you are in this together so you really do need to know how each other feels about working past retirement age and the expectations for your standard of living after retirement.
For more information contact our office to schedule a consultation with the attorneys at Krause Donovan Estate Law Partners, LLC. Their experience and knowledge can help you have the peace of mind of knowing that you have a plan. Contact Attorney Daniel J. Krause or Nelson W. Donovan today.
Reach us through our website or call our office at (608) 344-5491 to schedule your confidential, no-obligation initial consultation