4 Costly Social Security Mistakes
With yields low and the uncertainty of retirement looming in the minds of Baby Boomers and current retirees, maximizing social security benefits become ever-more important. Unfortunately not all retirees are doing that. Here are 4 costly mistakes retirees tend to make in regards to their Social Security benefits. Source: Prudential Financial, Inc.
In 2013, a worker retiring at full retirement age (now 66) can receive as much as $2,533 a month from Social Security, or over $30,000 a year. The benefits are also indexed to inflation, so retirees have some shelter from increases in their cost of living.
Often, retirees start to receive Social Security benefits as early as age 62. By waiting until age 70 to start collecting, they might double their initial payments. Waiting also may provide a heftier survivor’s benefit.
Timing matters. For example, the spouse with the higher lifetime earnings might start benefits at age 66. Even with much lower lifetime earnings, the other spouse could receive as much as 50% of that amount. Then the higher-earning spouse can suspend benefits, receiving a 8% annual increase before re-starting benefits at age 70.
IRA withdrawals are not only taxable – they will also increase a retiree’s adjusted gross income (AGI), which can cause more Social Security benefits to be taxed. As Prudential explains, “You can reduce your taxes by choosing higher Social Security income and lower IRA withdrawals when you develop your strategy for taking retirement income.”