4 signs that you think social security wrongly benefits – The Fool Motley

Social security benefits are a major source of income for retirees, but far too many seniors have no clear idea of ​​how these benefits will be used. Even worse, many seniors have misconceptions about Social Security benefits, which could adversely affect their retirement plans.

To make sure that you are not among millions of confused people as to how Social Security will provide you as a senior, consider these four signs that you are considering not perceiving social benefits.

1. You expect Social Security to provide all the retirement income you need

Social security benefits are designed to replace about 40% of your income before retirement, while most financial advisors suggest you need at least 70% of the money you earned before you retire .

If you do not save money to supplement social security, you put yourself in a position where your social security benefits can be your only source of funding as a senior. It's a recipe for a financial disaster because living solely with Social Security will leave you close to the poverty line.

Do not rely on Social Security to provide you with everything you need. Instead, invest in a 401 (k) or IRA for additional savings. Ideally, try to invest at least 15% of your income. If you can not start there, set up at least small, automated contributions to make sure you save something. You can increase your contributions over time as you get used to living with a little less or when your income increases.

2. You plan to take Social Security at age 65 or over

According to the Employee Benefits Research Institute, no less than 70% of workers think they will receive social security benefits at age 65 or older. Nearly 20% expect to wait until the age of 70, which is the last age at which you can get deferred retirement credits to increase monthly income from Social Security.

The reality, however, is that age 62 is the most common age for claiming social security, while age 63 is the median age at which retirees claim benefits. If you plan on waiting to make a claim to increase your monthly income with Social Security, you may run out of money if sickness or unemployment forces you to leave the job market sooner.

To make sure you do not have a shortfall, assume that you receive the amount of the monthly benefit you would receive at age 62 and plan accordingly when you decide what additional income you need from your savings. If you are lucky enough to be able to work longer and postpone benefit payments, you will simply have additional income, which is better than having too little.

3. You do not consider your spouse when you draw up your social security benefit plan

If you simply consider applying for social security benefits in your own work record, you may not be able to collect a higher payment if you qualify for widow's or spouse's benefits. If your spouse is earning more, you need to carefully consider whether making a claim under his or her work record can bring you more money than claiming your own work history.

You can claim spousal benefits even after the divorce, provided you have been married for at least 10 years. Do not assume that you are entitled to your own work record, even if you are single.

If you are the highest income earner, you should also consider your spouse when deciding to claim benefits. When a spouse dies, the surviving spouse may choose to receive widow's benefits or yours, whichever is greater. If you claimed your benefits early instead of waiting to get deferred retirement credits, you reduce the widow benefits that your surviving spouse would have received. This could leave your spouse with insufficient funds once you are gone.

4. You think that taking Social Security at age 62 will not have any impact on your long term benefits

Many people retiring at age 62 have a major misconception about what benefits are before retirement age. In fact, 39% of pre-retirees think that if they claim reduced benefits sooner than expected, they will become standard benefits at retirement age.

This is not the case, and the benefit reduction that occurs when you apply before the retirement age affects your annual Social Security income throughout your retirement. Your future cost of living adjustments are based on the amount of your lower starting benefit and your monthly income will never be as high as if you had expected it.

Make sure you do not think of Social Security in the wrong way

Since social security benefits are such an important source of income for retirement, it is helpful to research to make sure you are not making big mistakes in your benefits. Check out this guide to social security benefits and make sure you know the answers to five key questions about social security before applying for social security benefits as an elderly person.