3 Ways to Lose Your Social Security Benefits – The Motley Fool

Social security benefits are an essential part of the retirement of most Americans. It is therefore important to aim to make the most of the program. I've already talked about different ways to increase your social security benefits, but there are also ways to lose them – or just not to get as much as you can.

Here is an overview of the three main ways to lose your Social Security benefits. See if some might apply to you and keep them in mind when planning your retirement.

N ° 1: Taxes

You may think that working while collecting Social Security benefits will provide you with the best of both worlds – some extra part-time money in the early years of your retirement and some of the benefits you've gained over the years. decades of work. Think again, though. You certainly could Do this, but if your earnings exceed a certain level while you are receiving Social Security benefits, these benefits may be taxed.

You will never be taxed on more than 85% of your social security benefits, but you could be taxed on 50% or 85% of them. If social security benefits make up the majority or the majority of your income, you probably will not be taxed at all.

To determine if you need to pay taxes on social security benefits, you need to calculate your "combined" income, which is your adjusted gross income ("AGI") plus non-taxable interest plus half of your social security benefits. The table below shows the taxation you can expect:

Source: Social Security Administration.

Being taxed on your benefits is not the worst of things, but do not be surprised by the tax and start it off first. Depending on what you expect to earn, it may not be as good as you thought it would be to work while receiving benefits. You may want to ignore the work or delay the start of benefit collection. (After all, delaying the start of collection will make your checks bigger.)

N ° 2: Restraint

Here's another problem – and that can reduce your benefit checks: If you work while receiving Social Security benefits, you could also have some of your benefits retained.

Benefits are reduced if you earn more than a certain amount while receiving benefits before the retirement age. The Social Security Administration explained that "if you are younger than the age of retirement throughout the year 2018, we must deduct $ 1 from your benefits for every $ 2 you earn more than $ 17,040. "

It may sound outrageous and unfair, but wait, it's not as bad as it sounds. The money withheld is not lost; it is reflected in the benefit checks you receive later, which eventually increase.

Once you have reached the retirement age, you can earn any amount while receiving Social Security benefits, and your benefits will not be reduced.

No. 3: Bad planning

Finally, one of the worst ways to lose social security benefits is when you end up receiving less from the program than if you had made different decisions along the way. Smart social security strategies and benefit-building measures can make a big difference.

For beginners, be aware that among the many ways to increase your social security benefits, a particularly effective strategy is simply to delay the start of their collection. We can all start receiving our benefits from the age of 62 and up to the age of 70. Each year, beyond the age of full retirement, you will increase your value by about 8% up to age 70. If you delay 67 to 70 years, you You'll get about 24% more checks – enough to turn a check for $ 2,000 into a check for $ 2,480.

This may seem like obvious, but (a) many people can not afford to wait – they need this income as soon as possible, and (b) the system is designed so that if you live average life, you collect the same amount, in general, no matter when you start. Starting early means that your checks will be smaller, but you will get a lot more. It is really best for many of us to start collecting at the age of 62 – but if you can afford to wait and your family usually lives a long time, you might well take delay.

If you are married, you need to consider some social security strategies. For example, you and your spouse could begin to collect the lowest-income spouse's benefits for life, on time or early, while delaying the start of the highest-income spouse's benefit payments. In this way, you will both benefit from an earlier income and, when the highest income reaches 70, they will be able to start collecting additional checks. In addition, if this spouse with the highest number dies first, the spouse with the lowest earnings history can collect these larger benefit checks.

Another strategy is available only for those who are divorcing: Know that a divorced person can receive benefits based on the history of his ex-spouse – even if he / she has remarried – if this spouse earned more in his professional life. However, you must follow the rules. You must have been married for at least 10 years – so if you plan to divorce after, say, nine years, you may want to try to delay if possible.

The more you learn about your social security benefits and plan for them, the more important they will be, which can make a significant difference to your financial security in retirement.