There’s a knowledge gap between Social Security and the public, especially for those Americans who aren’t receiving benefits yet.
According to a recent study from The Harris Poll and the Nationwide Retirement Institute, Americans are “failing in Social Security education.”
The study found that 54% of Americans who are not already receiving Social Security benefits say they know how to maximize their benefits. “However, only 6% know all the factors that determine the maximum benefit someone can receive,” Nationwide reports.
That’s just for starters. The report also noted:
— 39% don’t know the eligible age to receive full benefits.
— 51% don’t have a clear sense of how much they will receive in Social Security income.
— 30% don’t know that Social Security may offer benefits for spouses and children.
— 37% incorrectly believe that Social Security benefits are not protected against inflation.
— 45% mistakenly believe if they claim early, their benefits will go up automatically when reaching full retirement age or don’t know this is false.
“It’s indisputable that Americans across all generations need more Social Security education,” says Tina Ambrozy, senior vice president of strategic customer solutions at Nationwide. “Unfortunately, failing to close the knowledge gap and correct some of these misconceptions can have costly repercussions. Financial professionals must help their clients understand this bedrock of retirement security in America and plan properly to maximize their Social Security benefit.”
[READ: How Much You Will Get From Social Security.]
One upside, especially for Americans not yet receiving Social Security benefits, is there’s time to recognize the Social Security mistakes to avoid. There’s also time to get ahead of the problem with some corrective actions.
Here are seven common Social Security snafus and how to keep those mistakes out of any personal or family Social Security discussions.
7 Social Security Mistakes to Avoid
1. Not asking for help.
2. Not accounting for longevity.
3. Mistakes with spousal benefits.
4. Not looking at the big picture.
5. Ignoring paperwork.
6. Not accounting for COLA.
7. Not planning early enough for Social Security.
Not Asking for Help
Social Security is akin to a 1,000-piece puzzle for most Americans, who have little idea how the program works or how to maximize their own benefits.
“Financial literacy in America is poor in general but especially so for Social Security,” says Nick Cantrell, founder at Green Future Wealth Management in Worcester, Massachusetts. “The government has done a poor job of explaining benefits to workers and has a policy of not offering guidance or recommendations to claimants on how they can maximize their benefits.”
Consequently, one of the most damaging mistakes people make is not consulting with a trusted money management practitioner before claiming Social Security.
“Most people have no idea how to optimize their Social Security income or what the optimal claiming strategy may be,” Cantrell says. “Even as a CFP practitioner and financial planner for over 15 years who has given dozens of Social Security seminars and calculated optimal claiming strategies for hundreds of people, I still utilize software to help me recommend the optimal Social Security claiming strategy.”
Not Accounting For Longevity
One particularly damaging mistake with Social Security is not understanding longevity.
“Your life expectancy at 62 is much longer than what it was at birth,” says Jeremy Keil, founder at Keil Financial Partners in New Berlin, Wisconsin. “It takes five minutes to go to LongevityIllustrator.org and learn both your personal life expectancy and the odds that you’ll make it to certain ages.”
Mistakes With Spousal Benefits
Another big Social Security mistake to avoid is not considering a spouse.
“If you’re married and you have the higher benefit, your choice is not about you,” Keil says. “It’s not only about the both of you, it’s most importantly about the widow(er).”
A spouse may be living on your decision 10, 20, or 30 years from now, and that’s a big deal.
“I haven’t met a widowed spouse that wanted less Social Security money every month,” Keil adds. “If you have the highest benefit, do what you can to delay claiming and get that higher dollar amount.”
[See: 10 Ways to Increase Your Social Security Payments.]
Not Looking at the Big Picture
Many Social Security recipients don’t weigh the optimal time to begin taking benefits.
“Most of our clients take Social Security at their full retirement age or they delay past that to pick up the 8% yearly credit,” says Jim Eutsler, a wealth advisor and partner at HCM Wealth Advisors in Cincinnati.
However, if you believe your life expectancy will be cut short or you simply have concerns about the solvency of the Social Security system, taking your benefits before your full retirement age may make sense for you.
“To optimize your Social Security experience, look at your holistic financial situation, your anticipated tax brackets in future years, the health of you and your spouse and how you’ll fund your lifestyle if you do delay taking Social Security,” Eutsler says.
Ignoring Paperwork
Too many people fail to review their Social Security statements, says Rose Jimenez, chief financial officer at Puerto Rico-based Jimenez Accounting Solutions.
“Social Security sends statements so people can check if their contributions and their company’s dues for them are paid,” Jimenez says. “By not reviewing those documents, there’s a danger as scammers can use your identity and loan money using your Social Security number.”
[Read: How to Apply for Social Security.]
Not Accounting for COLA
Another mistake people often make is that they forget about the cost-of-living adjustments
that apply to Social Security benefits when calculating when they should claim.
“COLA additions to Social Security income benefits are an extremely powerful retirement income feature, and the vast majority of participants and even financial advisors are not focused enough on cost-of-living factors,” Cantrell says.
Not Planning Early Enough for Social Security
By and large, Americans should start planning their Social Security strategy in their early 50s.
“That’s a good strategy as your beliefs about when you’ll take Social Security will affect your beliefs about when you retire and how you invest,” Keil says.
According to Keil, the best organizational strategies to optimize Social Security include these action steps:
1. Get your personal longevity estimates and probabilities. The Social Security Administration maintains a life expectancy calculator that will tell you the average number of additional years a person with your date of birth and gender can expect to live. Another resource is LongevityIllustrator.org.
2. Focus on the “joint longevity” if you’re in a couple. “Notice how joint longevity is likely about five years longer than each of your individual longevity,” Keil notes.
3. Play both sides of the odds. In other words, if you want the higher monthly payout, file for the higher benefit later than you would have otherwise, Keil adds. “This helps you and your widow(er) and gives you more money if you live a longer-than-average life.”
Or, if you’re not sure you can wait, file for the lower benefit earlier than you would have otherwise. “This helps you get money from Social Security now and helps lessen the pain of waiting on the higher Social Security amount,” he says.
More from U.S. News
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What Raising the Retirement Age to 70 Would Mean for Social Security
The Future of Social Security: Will Social Security’s COLA Boost Mean Benefits Run Out Sooner?
Social Security Mistakes to Avoid originally appeared on usnews.com
