3 Social Security Strategies That Could Backfire
You’ll probably end up relying a bit on Social Security in retirement. It may not be your only source of income, but chances are that these monthly benefits will play an important role in your long-term finances. It is therefore important to withdraw as much money as possible from social security.
In the meantime, it’s a good idea to design a reporting strategy that leads to greater financial stability throughout your retirement. But while these strategies may seem sensible, they could end up making you lose money, not win it.
1. Apply for benefits early so you can invest
You are entitled to your full monthly Social Security benefit based on your salary history once you reach Full Retirement Age (FRA), either 66, 67 or somewhere in between depending on your year of birth. But you are allowed to register for benefits from the age of 62.
If you go this route, you will end up with a reduced monthly benefit, usually for life. But if you’re a seasoned investor, you might be inclined to use these advantages to build a portfolio of assets that could gain a lot of value.
It’s a good strategy in theory. But remember that even smart investors can be fooled by a volatile and underperforming market.
Take a look at what’s happened to wallets over the past 10 months. Many people are seeing year-to-date losses in their portfolios due to a bear market that surprised many investors. And even if you’re good at controlling stocks or exploring alternative assets, you could end up losing money, not making it, by cutting your Social Security benefits in hopes of earning a high return.
2. Delaying Your Deposit Without Considering Your Health
FRA is when you can begin to receive your full monthly Social Security benefits based on your income history. But for every month you delay filing after FRA, your monthly benefits are improved.
Now, you can only accumulate deferred retirement credits up to age 70. But if your FRA is 67, waiting that long means increasing your benefits by 24% – for life.
This strategy works well when you are healthy and expect to live a long life. But if you have major health issues in retirement and therefore aren’t as likely to live long, you could end up losing out financially by postponing your deposit.
3. Delaying a spousal benefit
When you apply for Social Security benefits based on your own income, delaying them results in an increase. But this rule does not apply to spousal benefits – benefits that you claim on the file of a current or former spouse.
There is no sense in delaying an application for spousal benefits beyond your FRA if you have the ability to enroll at that time. And if you delay, you could end up losing money that you would otherwise be entitled to.
Think about your strategies
Some social security strategies may appear viable when in fact they are not. That’s why it’s a good idea to read a lot about Social Security and learn the different rules of the program. It could save you from making a costly mistake and regretting it throughout your senior years.
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