3 Social Security Mistakes You Probably Don’t Realize You’re Making | Smart Change: Personal Finance

(Christy Pepper)

Social Security is complicated. This is unfortunate, because it is likely to be a significant source of income, and you may end up costing yourself significant benefits if you do not know the rules.

You don’t want to make Social Security mistakes that leave you with less financial security in your later years, so make sure you don’t make these three big mistakes.

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1. Overestimating what Social Security will do for you

Expecting too much Social Security is one of the biggest and most damaging mistakes future retirees make. If you think your retirement benefits will be enough to support you, you are very wrong, and you should correct course ASAP.

Here’s the truth. social Security It replaces about 40% of your pre-retirement income, even less if you’re a high-income earner. No one can, or should, cut their salary by 60% upon retirement. So you should have a detailed plan of how to generate the other income needed to cover your costs.

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Most experts predict that you will need to replace about 80% or more of your pre-retirement earnings. If 40% of that amount comes from Social Security and you don’t have a pension, the rest will need to come from your investment accounts — unless you’re confident you’ll work part-time in retirement.

2. Minimizing the impact of taxes on your benefits

Many people also don’t really understand how Social Security taxes work, and this can be a big mistake if you’re expecting a higher after-tax income than you end up with.

The truth is, Social Security benefits are partially taxed once the calculated income equals $25,000 for individual tax filers or $32,000 for married participants. Computable income is all taxable income, half of Social Security, and some non-taxable income. The $25,000 and $32,000 limits don’t change to account for inflation, so many seniors are taxed each year with increased benefits due to wage growth and cost-of-living adjustments.

If you live in one Article 12 states that social security benefits are taxableYou could lose more money in addition to what the IRS takes. So it’s essential that you factor in your potential tax bill when making sure you have enough to live on if you retire.

3. Making inaccurate assumptions about when you will submit for the first examination

Finally, a lot of future retirees have over-optimistic plans about when they will get their Social Security checks for the first time. Many people want to work, and wait to claim benefits, until their late 60s or even 70s, when the largest possible monthly amount is available.

However, life often gets in the way. If health or family issues force early retirement, or if you simply decide you can’t go to work anymore, you may end up claiming Social Security sooner than you expected.

To make sure you don’t run into a serious shortage, you’ll need to familiarize yourself with all of these facts about your retirement checks. You should ideally plan to have enough supplemental savings to support yourself through Social Security benefit claimed in 62, after deducting the applicable taxes from it. This will help you ensure that you are truly prepared for retirement without financial hardship.

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