Here are the top 5 Social Security mistakes to avoid

One of the biggest mistakes retirees can make is to underestimate the importance of Social Security in their retirement-planning strategies.

In an era of vanishing pensions and volatile markets, Social Security offers government-guaranteed income that isn’t vulnerable to market risk, can’t be outlived and can provide for your loved ones after your death.

Social Security–claiming strategies can be complex and have recently changed with the Bipartisan Budget Act of 2015. Many factors should be considered, including health, expected longevity and earning potential. As you get started, here are a few of the pitfalls and mistakes to avoid regarding Social Security.

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1. Filing too early. Many people believe retirement age is 65. Social Security full retirement age varies and is based on when you were born. Full retirement age is the age at which you can receive 100 percent of your benefit:

  • Born between 1943-1954: Full retirement age is 66
  • Born in 1955: Full retirement age rises by two months until stopping at age 67 for all those born in 1960 and later.

If you claim Social Security benefits before your FRA, you will get a reduced benefit. For example, if your FRA is 66 and you claim your benefit at age 62, your monthly benefit will be cut by 25 percent for the rest of your life. Every year you wait to claim your benefit past your FRA you earn an extra 8 percent in delayed credits until age 70. Claiming at 70 versus 62 means you receive 176 percent of what you would have received at 62 for the rest of your life.

2. Not staying married at least 10 years: If you are now divorced after having been married for at least 10 years, you will be eligible for your spouse’s Social Security benefit. When your ex-spouse dies you can also qualify for a survivor benefit as well from his or her record. Again you may be able to switch from your own benefit to the survivor benefit if it is higher.

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3. Not claiming a widow’s benefit. If you are a widow, a survivor benefit can be claimed based on your deceased spouse’s record as early as age 60. However, if you wait until your FRA, the benefit will be worth 100 percent of the benefit your spouse was receiving or was eligible to receive at his death. This benefit is eligible to you even if you remarry after age 60.

There are planning opportunities to consider when deciding whether to apply for your own benefits first or the survivor benefits. For example, if delaying your own benefit to age 70 would allow it to exceed the survivor benefit, you should consider claiming the survivor benefit first, then switching to your own benefit later.

4. Not working for 35 years. The Social Security benefit is calculated using your top 35 years of earnings. If you do not have 35 years of earnings, the missing years will count as zero earnings years. So even part-time lower earnings received later in life increase your Social Security benefit.

5. Failing to coordinate with a spouse. Married couples need to think about how their Social Security claiming strategy will affect [one another’s] benefits and income in retirement. Generally speaking, a surviving spouse can choose between their own benefit or a survivor’s benefit, depending on whichever is higher.

This can be particularly impactful if one spouse is older or earned more in their career. By delaying the start of Social Security payments up to age 70, married couples can increase the amount a spouse will be able to claim as a widow or widower.

(Editor’s note: This column first appeared on Investopedia.)

— By Kimberley Baker, founder of Advance Financial Group

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