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Costly mistakes to avoid when filing for social security

If you and/or your spouse have worked in an occupation that pays into the FICA (Federal Insurance Contributions Act) tax system – which helps to fund both Social Security and Medicare – you will likely be eligible to receive Social Security retirement benefits.

But before you file for this retirement income source, it is important to consider a number of different factors that could significantly increase or decrease the amount of benefits that you ultimately receive.

How Much Income Can You Count on from Social Security?

If you qualify for Social Security retirement benefits, the amount that you are eligible for can be dependent on a number of factors, including:

  • Number of work credits earned
  • Your full retirement age (FRA)
  • Age at the time you file for benefits
  • Amount of income you earned during your working years (specifically, the 35 highest-earning years)
  • Cost-of-Living Adjustments

According to the Social Security Administration, Social Security retirement benefits typically replace about 40% of pre-retirement earnings for average wage earners. This replacement percentage is less for those who earn higher wages, though, and is estimated to be under 28%.

Giving Your Social Security Income a Big Raise

Most people are eligible to file for Social Security retirement benefits at age 62. But if you begin to receive these benefits before you have reached your full retirement age, the dollar amount will be permanently reduced.

Social Security Full Retirement Age

Year of BirthMinimum Retirement Age for Full Benefits
1937 or Before65
193865 + 2 months
193965 + 4 months
194065 + 6 months
194165 + 8 months
194265 + 10 months
1943 to 195466
195566 + 2 months
195666 + 4 months
195766 + 6 months
195866 + 8 months
195966 + 10 months
1960 or After67

Source: Social Security Administration

Conversely, if you wait until after you have reached your full retirement age to file for benefits, you could end up giving yourself a nice big raise. That’s because the longer you wait to receive your benefits, the more “delayed retirement credits” you will receive – until you reach age 70 (You can continue to delay the receipt of your benefits beyond age 70, but you will not be able to build up any more delayed retirement credits.) The amount of this benefit increase is 8 percent per year for anyone who was born in 1943 or later.

Reducing (or Eliminating) Taxes on Your Social Security Benefits

Many people are surprised to learn that Social Security retirement income can be taxable. But if you start taking your benefits before you’ve reached full retirement age, and you also decide to work and earn more income, a portion of your benefits could be taxed.

In this case, once your Social Security benefits have begun, the IRS will add up all of your “provisional income” and, based on how you file your tax return, up to 85% of your Social Security income may be subject to taxation as ordinary income.

Some of the common provisional income sources include:

  • Wages from a job or business
  • Interest from various types of bonds
  • Rental income
  • Distributions accessed from tax-deferred accounts, such as a traditional IRA and/or 401(k) plan
  • Interest and other 1099 income that is generated from taxable investments

One-half of the amount of your Social Security income is also included in the provisional income total for the year.

Joint Provisional Income for Married Couples (in 2020)

Provisional Income% of Social Security Subject to Tax
Under $32,0000%
$32,000 to $44,00050%
Over $44,00085%

Individual Provisional Income for Single People (in 2020)

Provisional Income% of Social Security Subject to Tax
Under $25,0000%
$25,000 to $34,00050%
Over $34,00085%

Source: Social Security Administration

How to Maximize Social Security and Coordinate with Other Income Sources

Filing for Social Security retirement benefits can involve a number of “moving parts.” So, it is best if you have a good understanding of the “tradeoffs” that may need to be made – such as a lower amount of income if you file before reaching your full retirement age.

Discussing your objectives and income needs with a retirement planning specialist can help you to determine which route is the best for you. At Annuity Gator, our mission is to help people understand how to generate a worry-free retirement income so that they can focus on other things.

If you have questions or you would like a “second opinion” on how and when to file for Social Security, feel free to contact us and talk with an experienced advisor. We can be reached at (888) 440-2468, or send us an email with your questions to our secure online contact form. We look forward to assisting you.

Costly Mistakes to Avoid When Filing for Social Security

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