According to the Wall Street Journal, in 2014 $863 billion in Social Security benefits will be paid to approximately 59 million Americans. With the baby boomers – about 75 million members – beginning to retire, these numbers are expected to grow exponentially. Unfortunately, the vast majority of those applying for benefits have no idea of the complexity of the program and the numerous options to collect benefits. Despite all of the misunderstanding surrounding the Social Security program, this much is certain – it is your responsibility to know about the program and how it impacts you. The failure to know your options in applying for benefits and how it may impact your financial situation can be severe. Here are just a few things you should know:
1. Spouses beware. Couples have a lot of flexibility in claiming benefits. Unfortunately, too many spouses default to the easiest choice of claiming benefits at age 62. However, there are other strategies that should be considered such as, waiting to claim benefits until after age 65; claiming and then suspending your benefit (to allow your spouse to collect while your benefit will continue to increase); and claiming a spousal benefit first and then subsequently claiming your own benefit (this will allow your own benefit to further increase).
2. Divorced and surviving spouses. Too often ex-spouses, widows and widowers have no idea of the options they have in collecting benefits. Unfortunately, the Social Security Administration is primarily concerned with paying benefits rather than giving financial advice. As a result, it is incumbent upon those seeking benefits to tell the Social Security about family circumstances or a change in those circumstances.
3. Delaying Social Security. Delaying Social Security doesn’t only result in a larger monthly benefit, but it also may result in a lower taxes. Too many retirees defer withdrawals from their retirement accounts while claiming Social Security benefits beginning at age 62. Because their benefit is lower, they often will need to withdraw greater amounts from their retirement accounts and pay more income taxes as a result. However, by delaying benefits and thus ending up with a larger benefit, future withdrawals from retirement accounts will likely be smaller.
Social Security is complex and sadly, most people spend more time planning their vacation than they spend planning for 20 or 30 years of benefits. Fortunately, there are a number of resources available to assist people in navigating this critical subject. Make sure you know all of your options before you first claim benefits.