Social Security is a government program that was signed into law by President Franklin D. Roosevelt in 1935. At that time, Social Security payments started at age 65, but life expectancy was only around 61. The program was designed to keep the very elderly—people who could no longer do the primarily manual labor jobs of that time—out of poverty. It was built to help those outliers who lived longer than expected.
Today, Social Security has evolved and changed, while life expectancy has increased by a couple of decades. Since you only get one chance to do it right, how and when you file for Social Security is an extremely important decision. Here are seven things everyone should beware of:
1. Leaving Money On The Table
People who don’t file correctly leave a lot of money on the table.
Starting at age 62, any worker who has worked and earned a certain amount of credits for Social Security is eligible to file for Social Security benefits. However, 62 is considered “early,” and the benefit amount is permanently reduced by around 25%. Depending on your month and date of birth, full retirement age (and full benefit amount) is available starting at approximately age 66. If you wait to file, benefits can accrue and grow by 8% annually up to age 70, after which the amount of monthly benefit becomes fixed.
Besides deciding when to file, there are other ways you can leave literally tens of thousands of dollars worth of Social Security benefits unclaimed, especially if you are married, divorced but married to someone for 10 years in the past, or are a widow or widower.
2. Not Consulting A Professional
There are 567 different ways you can file for Social Security according to Bankrate.com. If you’re not asking your financial planner, advisor, broker, banker, or other financial professional to help you figure out Social Security, you may be missing out on up to six figures you could have had in your pocket to help you through retirement.
It’s understandable that people are leery about asking a professional for help. There are three reasons you should be concerned:
- Many professionals don’t understand Social Security in the first place and don’t really care to since they don’t make any money on it.
- Many professionals are not retirement planners, so they don’t take into account other sources of income, which could trigger potential taxation of Social Security benefits, which became legal in 1984.
- Certain types of advisors pretend to be authorities but, in reality, have only read a couple of articles about Social Security.
In order to get professional financial advice about how and when to file for Social Security, find a fiduciary who specializes in retirement planning. Most fiduciaries have Social Security software they can run to optimize your lifetime benefit amount based on your family’s parameters. Fiduciaries are legally bound to give you advice which is in your best interests, not theirs.
3. Filing At The Wrong Time
The first question most people have is, when should I file? It depends on your situation.
For instance, if your personal or family history indicates you will have a short life, or if you have lost your job and can’t find work or are unable to work, it may be best to file at age 62. For others who are working and who have a long life expectancy—who may live into their late 90s or even 100s—it might make more sense to wait until age 70 to file and have a higher benefit amount for the rest of your life.
Your fiduciary financial advisor should do a breakeven analysis for you. Remember, Social Security comes with many rules and regulations, and your decision is often permanent.
4. Missing Out On Married Options
If you’re married, or if you were married in the past to someone for 10+ years, don’t look at your Social Security filing options as an individual. There are many options to consider if you’re married, if you follow spousal benefit rules.
Divorced individuals 62 or older can file for spousal benefits even if their ex-spouse hasn’t filed for Social Security yet—without affecting their ex-spouse or their benefit in any way. (In fact, they won’t even know about it.) Similarly, widows and widowers also have many options to consider.
5. Relying On Social Security Call Centers For Advice
Don’t rely on Social Security call centers for filing advice. The staff is overworked and underpaid, they receive a high volume of calls, and they can’t legally give you financial planning or retirement advice. Call them after you’ve consulted with a Social Security expert, because they can help with the actual filing process and administration, including check receipt issues.
Consider this: In early 2018, an audit of Social Security found that 9,224 widows and widowers were underpaid approximately $131.8 million dollars. That’s an average of $14,000 each. The moral of the story is, don’t rely on the Social Security Administration, or SSA, to answer your financial questions. They’re not advisors, they’re administrators that are great at paperwork.
6. Letting A Missing Check Slide
Never ignore a missed payment. Why? A missed payment means you could have had your identity stolen. Someone else could now be collecting your Social Security check! If you’re missing a payment, something is probably wrong, and this is one of the times when you do need to call the Social Security Administration.
7. Filing Disability Claims Incorrectly
Workman’s compensation doesn’t always play nicely with Social Security disability claims. Horror stories abound where claims have been denied or reduced to zero, benefits have been taxed, which were never actually paid, or the IRS has gone after a claimant or their spouse. Particularly when disability is involved, you must consult with an expert or risk boxing yourself into an untenable situation. A true financial fiduciary will be able to help you with the right resources.
Don’t make mistakes. You’ve paid into Social Security your entire life. It’s time to make sure you are claiming what is rightfully yours. That’s not being greedy; that’s being fair. When it comes down to it, you should take full advantage of the program that you have paid into for years and years.
