If you in Cincinnati are like many Americans, you’re relying on Social Security to a large degree to cover your expenses once your career ends and that steady paycheck vanishes, says AZ Central in the article “These 3 dangerous Social Security myths could destroy your retirement.” However, that dependence could lead to serious problems, if you don’t know the best way to manage Social Security.
The better educated you are about this government agency and its benefits, the better off you, your spouse and your family will be. Even if you’re a decade or two away from retiring, it’s a good idea to start learning about how it all works.
Here are three myths that land many people in trouble.
Social Security benefits will replace your former paychecks. Not true. If you were an average earner, expect Social Security to replace about 40% of your paycheck. The balance is up to you. Most seniors find that they need at least twice that to live comfortably and keep on top of their expenses. No matter what your earnings, you can’t depend on Social Security completely in retirement.
Take steps to build retirement savings, whether you do that in an IRA, a Roth IRA or a 401(k). If you save just $300 a month over the course of 30 years, you’ll have accumulated a $340,000 nest egg—assuming a 7% annual return.
I can file early, which will reduce my benefits, but they’ll get bumped up when I hit full retirement age. Wrong again. Your benefits are calculated by averaging your monthly earnings during the top 35-year work history and then adjusting them for inflation. Once that monthly benefit is established, that’s what you are entitled to once you reach full retirement age, or FRA. If you were born in 1960 or later, your full retirement age is 67.
Yes, you may claim benefits before you hit your full retirement age. Anyone eligible for Social Security benefits can claim as early as age 62. However, for every month you take benefits early, you reduce them. Here’s where people get confused: they think if they file early, their benefits are smaller for a few years. Then when they hit FRA, they receive the full amount of their earnings. However, generally speaking, the amount you get when you start out will be the same amount you receive for the rest of your life, except for the small cost-of-living increases that are applied annually. Yes, you may file early, but your benefits will be smaller.
I can cancel anytime, and then file again later. Imagine the administrative nightmare that this would create if it were true—but it’s not. Every filer gets one, and only one, “do-over” in his or her lifetime. If you claim benefits before FRA and then want to change your mind, you can withdraw your application and file again later to get a higher monthly benefit. But you only can do that one time, and you only have one year from the time your benefits start to make that change. If you wait too long, you are stuck with whatever change you’ve made—permanently.
Bear in mind that if you do get that second chance at filing, you’ll need to repay the SSA every dollar in benefits you received. This is why so many seniors can’t capitalize on the do-over option, and instead end up stuck with a lower amount.
Don’t fall for the myths when you are thinking about how and when to take Social Security benefits. Be smart, be informed and don’t be afraid to ask a reliable source for help.
Remember: “An ounce of prevention is worth a pound of cure.” When making your estate plans or when probating an estate or administering a trust, do not go it alone. Be sure to engage a Cincinnati estate planning attorney.
For more information about estate planning, probate or trust administration in Cincinnati (and throughout the rest of Southwest Ohio) and to review free resources regarding estate planning, probate or trust administration, visit my website. If you have questions regarding this article or a particular legal matter, feel free to contact me at 513-399-PLAN (7526).
Reference: AZ Central (Oct. 10, 2019) “These 3 dangerous Social Security myths could destroy your retirement”