Money Talk Monday: What to know before claiming Social Security benefits
ALBANY, Ga. (WALB) – If you plan to retire anytime soon, there are a few things you should know about Social Security before you decide to claim your benefits.
Many Americans rely heavily on Social Security in retirement, but it was never designed to replace your full income.
Social Security was signed into law in 1935. At the time, it was intended to replace about 30 to 45 percent of a worker’s retirement income. But today, many retirees depend on it for much more.
You should look at your entire financial picture before you decide to claim. Social Security can cover basic living expenses, especially if you’re debt-free, but it shouldn’t be your only source of income.
“Social Security was never meant to be the majority of your retirement income,” said Kent Patrick with Bush Wealth Management. “It was more meant to be the foundation of the household, not necessarily the entire house.”
Timing matters when claiming benefits.
You can start claiming benefits at age 62, but doing so permanently reduces your monthly payment by as much as 25 to 30 percent compared to waiting until full retirement age, which for most people is 66 or 67.
On the flip side, delaying benefits can increase your payout.
“For every year that you delay after your full retirement age, your benefit grows by 8% per year,” Patrick said. “Now, once you hit 70, there is no benefit in waiting till after that.”
Patrick warns that claiming benefits while you’re still working could come with penalties and higher taxes, especially if you’re earning more than about $25,000 a year.
“If you’re still working and you actually claim Social Security under your full retirement age, there could be significant taxes and penalties associated with that,” Patrick said.
Married couples and divorced individuals may have even more options to consider, including spousal and survivor benefits.
“Married couples or married individuals have multiple more claiming options available that you need to really reach out to someone who’s an expert in the area and see what’s best for you,” Patrick said.
Widow benefits are available for surviving spouses. People who have been married longer than 10 years and divorced are still entitled to claim on behalf of that ex-spouse if it’s in their best interest.
As tax season continues, remember if you’re already collecting Social Security, you’ll receive a tax form that must be included when filing.
“You’ll get a form that you need to give to your tax preparer to show that Social Security income if you’re someone that’s already claiming,” Patrick said.
Patrick recommends people go to ssa.gov to create an online portal and see exactly what their benefit would be. He also suggests meeting with a financial advisor if you’re five to 10 years out from retirement.
“The most important step is to look at your entire financial picture,” Patrick said. “Don’t just look at Social Security in a vacuum.”
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