3 Sneaky Social Security Moves That Could Bankrupt Your Retirement

When it comes to Social Security, even the smallest mistake can have a significant impact on your retirement benefits. While Social Security may seem straightforward, there are several common missteps that can result in a significant reduction in your benefits. In this article, we will explore three seemingly harmless Social Security moves that could potentially slash your benefits.

1. Claiming Your Benefits Too Early

One of the most significant Social Security mistakes is claiming your benefits too early. While you are eligible to claim your Social Security benefits as early as age 62, doing so can result in a permanent reduction in your benefits. In fact, for every year you claim your benefits before your full retirement age, you will lose approximately 7-8% of your benefits. This reduction in benefits can add up over time and result in a significant decrease in your retirement income.

2. Not Considering the Impact of Working on Your Benefits

If you are under your full retirement age and you continue to work while claiming your Social Security benefits, you may be subject to the earnings limit. This means that for every dollar you earn above a certain threshold, you will lose $1 in Social Security benefits. However, this reduction in benefits is not permanent and is recalculated once you reach your full retirement age. But if you are not aware of the earnings limit, you may be caught off guard and lose out on benefits unnecessarily.

3. Not Accounting for Taxes on Your Benefits

Many people assume that Social Security benefits are tax-free, but that is not always the case. If you have other income sources, such as retirement accounts or a part-time job, you may be required to pay taxes on your Social Security benefits. In fact, up to 85% of your Social Security benefits may be taxable. If you are not accounting for taxes on your benefits, you may be surprised by a significant tax bill at the end of the year.

Conclusion

While Social Security may seem straightforward, there are several common missteps that can result in a significant reduction in your benefits. By being aware of these potential pitfalls and planning ahead, you can maximize your Social Security benefits and ensure a comfortable retirement. Remember, it is always better to err on the side of caution and seek advice from a financial professional if you are unsure about the best Social Security strategy for your situation.