Retirement is right around the corner, and you’re starting to plan for your post-working years. This means you might be in the last stages of planning your retirement income and creating a budget to make sure you won’t end up running out of money. And if you’re like 90 percent of people age 65 and older, you’re probably factoring in Social Security as an income source.1
On its face, Social Security may seem fairly straightforward. You retire, file for benefits and start receiving payments. Right?
It turns out, however, Social Security can be complicated. There are many factors that are used to determine your benefit amount. Things like work history, earnings history and the age at which you file all play a part in the amount of benefits you receive. Additionally, your Social Security benefits may also be taxed, which will reduce your income.
If you plan, however, you can avoid common mistakes and can maximize your Social Security benefits. Below are a couple of misunderstood assumptions that retirees make when planning for Social Security:
Low earnings history means a low Social Security benefit amount.
Work and earnings histories play a significant role in determining your benefits. So it is understandable that people often assume that if you have a limited work history, or a history of low earnings, then you won’t be able to receive a higher benefit. But just because you haven’t worked or have earned less doesn’t necessarily mean you can’t file for higher benefits.
For instance, if you put your career on hold so your spouse could focus on their career, or to help raise children, you may be able to file based on your higher-earning spouse’s income. And what if you did this but are now divorced? Don’t worry—all is not lost. Social Security still allows you to file for spousal benefits if you are age 62 or older, if the marriage lasted at least 10 years and if you have not remarried. So if you meet these criteria, you will be evaluated on your own record and if half of your ex-spouse’s is higher, the difference will be added to your own.2
You won’t have to pay taxes on your Social Security income.
You may think that since you have retired and stopped earning income, then you will no longer have to worry about income taxes. This is not quite true. More than likely you will have taxable income after you retire. Some of the most common assets that incur income tax include pension benefits, investment earnings and even Social Security.
As it turns out, up to 85 percent of your benefits could be taxed. The amount of tax you will owe is based on your “combined income,” which the IRS defines as the sum of your adjusted gross income, nontaxable interest and half of your Social Security benefit. The higher this number is, the higher percentage of your benefits will be taxable.3
Not sure whether you fully understand your Social Security options? Let’s talk about it. Contact us today at Carstens Financial Group. We can help you examine your options and decide on the best path for you. Let’s connect today and start the conversation.
This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
The material is not intended to be legal or tax advice. The insurance agent can provide information, but not advice related to social security benefits. Clients should seek guidance from the Social Security Administration regarding their particular situation. The insurance agent may be able to identify potential retirement income gaps and may introduce insurance products, such as an annuity, as a potential solution. Social Security benefit payout rates can and will change at the sole discretion of the Social Security Administration. For more information, please consult a local Social Security Administration office, or visit www.ssa.gov
16241 - 2016/11/15
Carstens Financial Group focuses on providing comprehensive asset management, estate planning and life insurance solutions. Allow us to help you secure your financial future.