LATEST UPDATE: I’m a Social Security Expert: 7 Things Americans Should Never Do With Their Checks
Claiming Social Security benefits marks a significant milestone in American life, signaling the start of a new phase. Deciding when to begin claiming these benefits is crucial, but it’s just the first step in managing Social Security effectively.
Common Pitfalls to Avoid
Navigating Social Security can be complex and overwhelming. Experts highlight several critical mistakes to avoid once you start receiving benefits:
Don’t Claim Early
Many experts advise against claiming Social Security benefits early. Chuck Czajka, a certified Social Security claiming strategist and founder of Macro Money Concepts, warns, “Unless there is an absolute good reason, taking early benefits can cost thousands of dollars lost over your lifetime.” While it’s possible to claim benefits before age 65, doing so reduces your benefits. Waiting until age 65, or even better, age 70, can increase your benefits significantly. Scott Lieberman, founder of Touchdown Money, notes that “Waiting until age 70 increases your benefits by 75% compared to taking them early at age 62.”
Don’t View Social Security Checks as ‘Extra Money’
Social Security checks should not be viewed as surplus funds. Erika Kullberg, attorney and personal finance expert, emphasizes that these funds should cover essential living expenses, such as rent, food, healthcare, and utilities. “Overspending these funds can create other financial problems,” Kullberg cautions. “Have a specific plan for where these funds go every month.”
Don’t Continue to Work Without Understanding Penalties
If you plan to work while collecting Social Security, be aware of potential penalties. According to the Social Security Administration (SSA), the earnings limit for those under full retirement age in 2024 is $22,320. For every $2 earned over this limit, $1 is withheld from benefits. Josh Richner, founder of FaithWorks Financial, stresses the importance of accurately reporting any additional income, such as part-time work or freelancing. “Failing to report can lead to a reduction in benefits or even repayment if you exceed the earnings limit,” he warns.
Don’t Co-Mingle Social Security Income With Other Funds
Avoid mixing Social Security income with other types of funds in the same bank account. Josh Richner advises maintaining a separate account solely for Social Security deposits. Combining funds can make it difficult to distinguish protected income from other money and may jeopardize it in cases of wage garnishment.
Don’t Take Cash Advances Against Your Checks
Be cautious of lenders offering cash advances against Social Security payments, which often come with high fees and interest rates. Dana Anspach, a certified financial planner and founder of Sensible Money, warns against this practice, stating, “The struggle to repay fees and interest can lead to a downward financial spiral.”
Don’t Forget About Taxes
Many people neglect to set up tax withholding on their Social Security benefits. If you have additional sources of income, part of your benefits may be taxable. Anspach suggests consulting a tax professional or using tax software to determine your tax liability and set aside funds accordingly.
Don’t Forget To Keep Saving
Even in retirement, it’s important to continue saving. Erika Kullberg advises building an emergency fund by saving a portion of your Social Security checks. This reserve can help you handle unexpected expenses and ensure your retirement savings remain intact.
By avoiding these common mistakes, you can better manage your Social Security benefits and enjoy a more secure financial future.
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