Laura interviews a Social Security expert about how the program works and what you need to know even if you're nowhere near retirement age. They discuss who's eligible for benefits, pros and cons of taking early retirement, how to avoid expensive Social Security mistakes, and the future of the program.
1. Relying Only on Social Security Personnel
The role of the financial advisor is absolutely critical, but not everyone understands this. And with Social Security, one mistake today could cost you money every month for the rest of your life.
Understand this: Social Security personnel are generally well-trained, dedicated professionals—but they are prohibited from giving you any sort of financial advice. And sadly, not all the information provided—either in person or over the phone—proves to be accurate.
Therefore, you need to be prepared before you go to your local Social Security office, and it’s generally a good idea to set an appointment in advance. This will cut your wait time dramatically, and will make it more likely that you’ll see a higher level, more experienced staff person. This is especially important if you’re doing anything at all unusual, such as applying for a “spousal only” or survivor benefit.
Better still, this is a great time to seek professional help. Too many people show up at their local Social Security office without a plan. They then rely on someone they don’t know in that office to show them what to do.
Too many people show up at their local Social Security office without a plan. They then rely on someone they don’t know in that office to show them what to do.
2. Not Considering Survivor Benefits
Survivor benefits can complicate your choices. Let’s take a quick look at a simple example. Let’s say your “Primary Insurance Amount” (PIA) is $2,000 and your Full Retirement Age is age 66. This means that you would get $2,000 per month at age 66, but $2,640 if you waited to age 70. You might be inclined to take the $2,000 now rather than waiting. After all, you’re not sure whether you’re going to live long enough to make it worth the wait.
But what about your spouse? Understand how basic survivor benefits work. Assuming both you and your spouse live past age 70, the survivor benefit is generally the higher of the two benefits.
So if you’re getting $2,000 and your spouse is getting $1,000 per month, the spouse would step up to $2,000 if you died. If your spouse died first, you would remain at the $2,000. Either way you still lose the lower benefit, but it’s better than nothing.
It’s important to remember this when deciding on a claiming strategy. If you wait until age 70, the survivor benefit would be $2,640, and that benefit would continue for the rest of your life, then your surviving spouse’s life. So, although you may feel it’s not worth the wait for you, it may be worth it when you consider how long that potentially higher benefit could continue.
3. Not Applying for All the Supplemental Benefits
Here’s one big problem if you try and do it yourself: you may not remember to apply for everything you’re entitled to. Probably the biggest issue here is a spousal benefit.
Let’s say you worked your whole career with a non-working spouse. Even though that spouse would not be eligible for a personal benefit, in almost all cases he or she would be eligible for a spousal benefit based upon your work history. You would have to apply first, and your spouse would have to be at least age 62.
This is one area where Social Security employees are usually pretty good at keeping people informed. If you go to the Social Security Office, they will most likely be able to explain it to you, although there is certainly no guarantee.
According to GAO statistics published last September, a full 52 percent of people are completely unaware that spousal benefits even exist!
But according to GAO statistics published last September, a full 52 percent of people are completely unaware that spousal benefits even exist! (Source: GAO-16-786 “Improvements to Claims Process Could Help People Make Better Informed Decisions about Retirement Benefits,” published September 14, 2016).
But there’s more to it than just that. There could be children’s benefits if you have children under 18 or disabled adult children. And there could also be a special “child in care” benefit for your spouse, regardless of his or her age.
As with most of the problems illustrated here, the solution is a simple one: enlist the help of a qualified financial services professional before you start.