Three key things you need to know about Social Security benefits.

If you do not know these things about your benefits, your benefits can be reduced. This reduction in benefits can last for the rest of your lives. Here are three pitfalls to avoid in taking your benefits.

The key points to remember
1.       Postpone taking your benefits for as long as possible. By doing so, you and your spouse will receive a larger amount over the course of your lifetimes.
2.      If you continue to work and make too much money after you start taking benefits, you can temporarily reduce the amount of your benefits.
3.      We suggest that you seek the advice of a retirement specialist who can help you find your way through these rules of Social Security benefits to maximize your Social Security distributions to the largest extent.

Three pitfalls
1.       Taking money too soon. Let’s face it, it is hard to look at the idea that you could start receiving money when you are 62 as soon as you become eligible. We all think now is better than later when it comes to receiving money. However, if you wait longer your monthly benefit will go up. The likelihood is with life expectancy today, your benefits go up enough and you will live enough longer to more than make up for not taking benefits for those first few years. Additionally, the cost of living adjustments (COLA) are based on the amount of the monthly benefit you receive. As a result, if you start taking benefits at age 62 your cost of living adjustments will always be calculated on a lower amount.

2.      Loss of benefits for work. Oftentimes, people decide to go ahead and take benefits early. They do this and say to themselves, “well, I will keep working and get benefits at the same time.” It is like getting a big raise now. The problem is that your benefits will be reduced if you exceed a certain threshold in income. The reduction in benefits continues until your full retirement age at 66. For the year 2014, the Social Security Administration reduces your benefits by one dollar for every two dollars of earned income that is in excess of $15,480.00. As an example, if you take benefits at age 62 and you have income of $30,000.00 you are $14,520.00 over the annual limit. Your benefits are reduced by $7,260.00; that is 50% of the difference. These reductions in benefits are not actually completely lost: they are deferred and credited to your benefits record when you reach full retirement age.

3.      Benefits for your spouse. When you start taking benefits also affects your spouse. If your own benefit is less than your spouse’s benefit, your spouse may be eligible to receive your monthly benefit. Taking your benefit earlier as opposed to later reduces your spouse’s benefit also. If you can defer your benefits until you reach age 66, you can claim your social security benefits but delay taking them. This allows your spouse to draw spousal benefits immediately and you can continue to work and increase the value of your future benefits.

Things you should consider

In a perfect world, you will want to take stock of when to start taking your benefits based on several things. You will need to consider your retirement savings and other sources of retirement income. You will need to consider your health and your spouse’s health. You will need to consider your family’s history of longevity. You also need to consider if you continue to plan working. In the vast majority of cases, most people benefit from waiting until a later age to start their retirement benefits. Sometimes people run the risk of running out of money. On this risk they may need to start taking their benefits as soon as they are eligible. It is really important for you to speak with a retirement planning specialist to help you decide what is best for you.

If you are a savvy investor and can count on market performance and you are concerned about the future of social security, you might start taking your benefits at age 62 to get everything you can as early as you can and start investing those benefits. By the time you need to start using the money, your superior powers of investment may have made up for the loss you have of taking the money early. Only a retirement and investment specialist can tell you if this makes sense.

By deferring your benefits beyond age 62, the benefits grow each year until you reach age 70. You may consider extending your working life to age 70. Health insurance is a big factor to consider. Social Security will start paying you a reduced amount at age 62. However, Medicare starts at age 65. If you stop working you will need to continue paying for private health insurance with your own money.

If you are married and you wait to take benefits until your full retirement age of 66, there is another benefit option open to you. You can both retire at the same time. Your spouse will receive a lower benefit. You claim the spousal benefits now from your spouse. Then, you let your benefits grow as long as possible and switch to your benefits when they get to be the largest possible.

Bottom line, please visit with a trusted advisor in order to analyze your situation.  We are all different, no short blog can address all the options available.  Personally, my plan is to work as long as I can and defer taking benefits as long as possible.  I tell people I am still young though and my situation may change.  Your situation may be different and changing too.  If the averages work out your best bet is to defer because the longest deferral creates the greatest return.