3 Social Security tips to avoid costly mistakes

3 Social Security tips to avoid costly mistakes

(Dan Caplinger)

It is important to make the most of your Social Security benefits. The problem, however, is that the program is complicated and it’s easy to miss out on available benefits or aspects of the program that can benefit from it.

In particular, there are three things many people don’t realize about Social Security. Just a little simple learning can potentially save you from making costly mistakes.

1. Know when your perks have maxed out

Different perks have different rules governing when you’ve reached the maximum amount you can get. In general, the wait can increase the size of your Social Security checks, but there’s almost always a time when there’s no longer any reward for putting off taking your benefits any longer.

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For retirement benefits, deferred retirement credits cease to accrue at age 70. Therefore, waiting past age 70 will never net you a larger monthly payment and will simply mean missing checks you would otherwise be entitled to receive.

However, the rules are different for spousal benefits. Deferred retirement credits are not available with spousal benefits, so your monthly check amount will peak when you reach full retirement age, which for most people retiring recently is between 66 and 67 years old. In this case, the only time it makes sense to wait beyond full retirement age if your own retirement benefit will potentially be greater than any spousal benefit to which you are entitled.

2. If you’re divorced or remarried, know how Social Security works

Many people are surprised to learn that Social Security benefits are often available to divorced spouses. As long as you were married for 10 years or more before divorcing, you are generally eligible to receive spousal or survivor benefits depending on your ex-spouse’s work history. However, those who have not met the 10-year threshold are generally not eligible for payments on an ex-spouse’s file.

Once you have these benefits, however, you can lose them in some cases if you remarry. For spousal benefits while your ex-spouse is still alive, remarriage at any age will cause you to lose the benefits you receive based on your ex-spouse’s work history. Instead, you are expected to make claims based on your new spouse’s work history.

Survivor benefits work differently. Even if you remarry, you can continue to receive survivor benefits depending on the ex-spouse’s work history, as long as you waited until age 60 before remarrying. Remarry earlier, however, and you will lose those survivor benefits.

3. Don’t forget the IRS

Another often overlooked fact about Social Security is that if your earnings are high enough, a portion of your benefits may be subject to income tax. Specifically, the Internal Revenue Service takes half of your Social Security benefits and adds most other sources of income.

If the total exceeds $25,000 for single filers or $32,000 for joint filers, up to half of your benefits may be added to your taxable income. Exceed the higher thresholds of $34,000 for singles and $44,000 for co-filers, and the amount of benefits you must include in taxable income can be as high as 85%.

To control this, keep an eye on your other sources of income, especially optional distributions from retirement accounts which can increase your taxable income figures. While you can make changes that improve your tax position, they may also have the effect of reducing Social Security’s income tax liability.

Get the Social Security benefits you deserve

Getting the most out of Social Security is essential for your financial security. Knowing these benefits and the potential pitfalls of making a mistake can put you in a better position to avoid costly mistakes.

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