Social Security is one of the most important programs in the United States, providing millions of beneficiaries with monthly checks to help them keep up with rising inflation and meet their basic needs. According to April statistics from the Social Security Administration (SSA), more than 50 million retired workers receive monthly benefits ranging from $1,900 to $4,873. Since many retired workers rely on these payments to enjoy their retirement lives, it is important to always keep up to date with Social Security news and be aware of all the decisions you can make and how they will impact your monthly benefits. If you currently receive retirement benefits, or if you are thinking of applying for benefits shortly, check here for the three decisions that, if you are not aware of them, could cost you more money than you think.
3 Social Security benefit decisions that can cost you dearly
Every month, Social Security provides benefits to millions of retired Americans. These benefits also serve as the primary source of income for some seniors. You may find that you rely heavily on monthly benefits, so you may want to avoid these transactions.
Deciding to claim benefits early
Depending on your individual earnings history, your senior Social Security income will vary each month. However, the amount of money you receive each month will also depend on your filing age. At full retirement age (FRA), if you file for Social Security, you will get the exact monthly amount to which your earnings history entitles you. Depending on the year of your birth, FRA can be 66, 67, or a combination of both. Nevertheless, you do not have to wait until FRA to submit your SSA application.
For instance, you may enroll as early as age 62, which, assuming you were born in 1960 or later, maybe up to five years before your full retirement age arrives. However, your monthly benefit is permanently decreased for each month you take Social Security benefits before FRA. Your monthly benefit will decrease more if you file earlier. Lastly, please consider that an early Social Security claim is something you may regret greatly if you do not have much saved for retirement. Furthermore, even if you do have a sizeable amount of money stashed away in an IRA or 401(k), you never know how long your nest egg will endure. You may therefore lament the absence of a higher lifetime guaranteed benefit.
Filing late for Social Security benefits
Remember, you can claim Social Security after your full retirement age (FRA), just as you can before your FRA. Your payments will increase by 8% for each year you wait to claim after your FRA, up to age 70. If you have little personal savings and depend on your higher monthly income to cover your expenses, it may make sense to wait to claim Social Security. But keep in mind that if you die at a young age, delaying your claim could result in a smaller lifetime Social Security benefit. Indeed, you may come to regret a postponed filing if your health is not the best. You can receive less Social Security benefit than you would have if you had filed at FRA or earlier.
Relying solely on Social Security payments for your retirement
Saving for retirement is a challenge. When you are struggling, you may tell yourself that you can live on Social Security alone. But as a retiree, you may kick yourself for making that choice. When your career ends, your living expenses may go down, but maybe not as much as you think. As a result, retirees often need between 70% and 80% of their previous income to live comfortably.
Social Security only replaces around 40% of average pre-retirement wages, assuming no benefit reduction. However, benefit cuts cannot be assured, so consider withdrawing from your 401(k) or IRA or investing in a dividend stock portfolio to supplement your income. Therefore, you could experience financial hardship or lose income if you mishandle your income in the future. Watch out for these seemingly reasonable actions, since without knowing it, they could end up costing you more than expected.
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