Social Security benefits can be a critical financial lifeline for retirees, but mistakes in planning and timing can reduce their effectiveness, financial advisers have warned. The Independent spoke to multiple professionals to identify the top errors retirees make and how to avoid them.
One common mistake is claiming benefits at age 62 without understanding the long-term impact. Steve Sexton, CEO of Sexton Advisory Group, said: 'One of the biggest mistakes I see is people filing for Social Security the minute they become eligible at 62 without fully understanding what they're giving up.' Early filing permanently reduces monthly benefits for life, potentially causing strain later in retirement when medical expenses rise.
Another pitfall involves taxes on benefits. Retirees are often surprised that their Social Security can be taxed if combined income exceeds certain thresholds—$25,000 for single filers to avoid tax, with up to 85% taxable above $34,000. Withdrawals from 401(k)s or traditional IRAs can push retirees into higher tax brackets unintentionally, creating a larger tax bill than expected.
Finally, failing to account for annual cost-of-living adjustments (COLAs) is a common oversight. Certified financial planner Vincent R. Birardi of Halbert Hargrove noted that while COLAs help keep pace with inflation, retirees must budget wisely to ensure savings last. Coordinating Social Security with retirement accounts, taxes, and spouse's benefits is key to long-term security.
