Social Security retirement benefits may seem simple. But they are not. In fact, there are hundreds of rules that govern the benefits program. Given that, there is one big Social Security mistake that people make time and time again. In this article, we’ll look at that big mistake and how to avoid it.
What is the biggest Social Security mistake? It is lousy timing. For the most part, the error is taking retirement benefits too early. For married couples, the timing mistake is not only when, but it is who. Many times, the mistake is taking the wrong spouse’s benefit at the wrong time. For some other people, the mistake is not drawing their retirement assets in the proper sequence. That timing problem not only affects the amount retirees draw, but it also affects the amount of taxes they pay on their Social Security retirement benefit. Since none of us have a stamp that says, “best if used by,” how do you know the best time to take your retirement benefits? By comparison, certain Social Security benefits do not improve by delaying them. I’ll clarify that in a moment when I cover survivor benefits. First, here are some issues that can influence people to make the wrong decision.
Hello 62, show me the money!
The earliest age you can claim Social Security retirement benefits is at age 62. In the long run, you probably want to get the most out of Social Security that you can. After all, you probably paid into it for a very long time, and you feel entitled to a benefit. If you want to take your money now, you’re not alone. It is human nature. But in this case that human nature is usually wrong. Here is why.
It’s like eating marshmallows!
Have you ever heard of the Marshmallow Principle? It is a study of the ability to avoid impulsive behavior. Here is an example of the study. A child was put in a room with a marshmallow on a plate. The child was told not to eat the marshmallow.
Furthermore, the child was told that they would get TWO marshmallows if they waited! The child was then left in the room alone. In time, what do you think happened? Surprise, some children gobbled down the marshmallow and couldn’t wait. The same thing happens with Social Security retirement benefits. Some people just can’t wait.
Socrates, “know thyself”
Similarly, those heading toward retirement are told, if you wait, you will get more money! So why don’t people wait? Here are a few theories. See if any of them describe you? If you can see the mistake that might happen, maybe you can avoid it. Here is the list. Afterward, you can read the rebuttal to the boldface statement below.
Six reasons people make a big Social Security mistake
- If you are married and you take your Social Security retirement benefits as early as possible, have you ever considered that might be selfish? If you take your benefit without considering your spouse, it looks like you don’t care what your spouse gets. You just want your money now. Are men just cads?
- You just don’t know when to take the money. For this reason, you take what you can get now. It like the old saying, “a bird in the hand is worth two in the bush.” Take the money now! BUT that is not always true.
- You’re one of the few people that have a pension through work. So why not take it early when you take your pension? This is one of the few reasons that make sense. So, what if you have a pension?
- There is a lot of news and talk about the problems with the Social Security Administration. You should take the money now before the government takes it away from everybody and you lose it. Don’t believe fake news!
- You don’t think you’re going to live a long time in retirement. Seeing that, why not take the money now? Where is your expiration date marked?
- Aren’t the Social Security retirement benefits supposed to be like a salary continuation plan? If you’re retired and don’t work anymore, shouldn’t the retirement benefits be there to continue your salary? What is the Social Security retirement benefit supposed to be used for?
In truth, did any of these describe you? If they did, let’s look at some of the reasons why these reasons are right or wrong.
Are men just cads?
If you are married, you should be conscious that in many relationships, the husband is older than the wife. In the US, most husbands are about three years older than their wives. Even for those marriages that do not have an older husband, consider the fact that women inherently have longer life spans than men. In the 1970s, the life expectancy gap was about six years. In recent years, the life expectancy gap has narrowed to about four. Seeing that, the wife will in all probability end up needing income longer. But don’t let the recent decrease in numbers lull you into a false sense of security. In my practice over the past thirty years, the average difference in the life expectancy gap that I’ve seen is about ten years. So, I would suggest that women should expect to collect Social Security retirement benefits ten years longer than men.
If a husband collects his Social Security retirement benefit too early, he is permanently reducing his wife’s spousal benefit for the final years of her life. As people age, the importance of Social Security retirement benefit increases. It is essential to realize that when one spouse dies, the Social Security retirement benefit will be reduced because of that death. In most cases, husbands are further reducing their wives’ income by claiming their Social Security retirement benefit too early.
The most crucial concept.
There are far too many couple scenarios to discuss in this short article. Here is perhaps the most crucial concept for married couples to keep in mind. This idea works if both spouses are eligible for Social Security Retirement benefits, and both are of retirement age. If one of the spouses wants to take their benefit before the other, the spouse with the lowest benefit should take their benefit first. When the spouse with the highest potential benefit claims their benefit in later years, the other spouse will discontinue their individual benefit. At that point, the spouse with the highest benefit will claim their benefit, and their spouse will now claim the spousal benefit. That might sound a little confusing, but it gives both spouses more money in later years.
In our firm, we have developed a type of financial plan we call the Retirement Income Financial PlanTM or RIFP. To help build a RIFP for clients, we use a sophisticated software program to factor in an individual client’s specific circumstances. An essential part of the RIFP is looking specifically at married couples’ Social Security retirement benefits and developing a personalized strategy to help them make the best choice for claiming Social Security. If you’d like to learn more about the RIFP visit our company website at www.RichardsFinancialPlanning.com
Take the money now!
If you didn’t know before, now you do know. Deferring your Social Security retirement benefit is usually the best option for people retiring. Look at it this way. It is more important to plan on NOT running out of money rather than trying to get paid for the maximum number of years. There is a significant exception. In short, deferring survivor retirement benefits is different than worker retirement benefits. Delaying survivor benefits beyond full retirement age will NOT increase those benefits.
What if you have a pension?
There is a difference between a retirement plan like a 401k and a pension. Pensions pay a fixed monthly benefit. If there is a choice of how to take the pension, it is essential to coordinate the pension option with the Social Security retirement benefit. Fewer people have pensions now. In fact, coordinating a pension may help retirees avoid or lessen income taxes on Social Security. That fact should serve as an essential reminder that tax planning and Social Security are crucial too.
Don’t believe fake news!
It would not take you long to find an article that said Social Security is going to fail. While nothing in life is certain except for death, Social Security failing is more than likely NOT going to happen. Here are a few facts that you can verify at the Social Security link in the footnotes. Social Security can sustain the current level of retirement benefits until 2035. Without any changes, Social Security can fund about seventy-five percent of benefits until 2093. 
By and large, Social Security retirement benefits will probably be amended by Congress. Only time will tell how that will happen. Retirement benefits for future retirees may change. Politicians from any party would be committing political suicide if they reduced retirement benefits for current Social Security recipients. If they make changes to the program, they are likely to grandfather current recipients’ benefits. One of the more likely changes will be some sort of higher taxes. We’ll have to wait to see how it turns out. But the Social Security retirement benefits program is not going to stop cold.
Where is your expiration date?
From time-to-time, someone who has poor health or terminal illness should take their Social Security retirement benefit as soon as it is available. But for most people, they should seriously plan on living a long life and having a long retirement. Where you live, your environment, lifestyle, and family history have an influence on your life expectancy. Some factors have a higher degree of effect on mortality than others. For example, in Harris County, Texas, there is as much as a “24-year range in average lifespan that varied across the county from as low as 65 years to as high as 89 years.” When planning for retirement, a difference of 24 years in lifespan is enormous. Since no one knows if they will be the one that lives to 65 or 89, it would be best to plan for a long retirement.
What is the Social Security Retirement Benefit supposed to be used for?
The way that people view Social Security retirement benefits influences the way that it is used. When President Franklin D. Roosevelt and Congress devised Social Security in 1935, the intent was to aid unemployment. In his April 28th, 1935, Fireside Chat, President Roosevelt said, Social Security retirement benefits are a
“means of old-age pensions, to help those who have reached the age of retirement to give up their jobs and thus give to the younger generation greater opportunities for work and to give to all a feeling of security as they look toward old age.”
Today, the vision of Roosevelt is not possible under the current system. The average monthly Social Security retirement benefit check is $1,427.97. The average monthly income of an American worker is $4,012.50.  It is evident, that the Social Security retirement benefit is far from being a replacement of a living wage. If you view Social Security retirement benefits as salary continuation, you will be very disappointed.
So how should people view Social Security retirement benefits? Nowadays, the program should be considered a part of overall retirement income planning. Usually, delaying receiving benefits is the best strategy, but not always. The timing decision is very individualized. Here is a list of issues you should take into consideration and evaluate before deciding when to claim your Social Security retirement benefit.
Social Security retirement benefit checklist.
- What is your age?
- What is your spouse’s age?
- What are your income and your spouse’s income, if married?
- What is your health like and your spouse’s health, if married?
- Are you and your spouse working, and for how long do you intend to work?
- Do you have any minor children or disabled children?
- How much is your income from investments, and can you defer any of that income?
- What are your income sources? FYI tax-free income is counted for Social Security retirement income taxation.
- Do you have a pension from a private company?
- Do you have a pension from a government job? That will more than likely affect the amount of Social Security retirement benefit you’ll receive, but not always.
- How much do you have in qualified retirement plans or IRAs?
- How much do you have in Roth IRAs? FYI, Roth distributions at the right age, do not count toward taxes for Social Security retirement income.
If you understand the misconceptions that surround the timing decision for Social Security retirement benefits, it makes it much easier to plan the best time to claim your benefit. If you know the answers to the twelve questions listed, it can help you make the best decision of when to claim benefits.
One final point.
We did not thoroughly cover the taxation of Social Security retirement benefits. But it is crucial to consider the timing of taking distributions from retirement accounts in relation to the taxation of your Social Security retirement benefit. Some people have the option of controlling the level or amount of their income that will be taxed while receiving Social Security retirement benefits. But that is a topic for another day.
Will you make the big Social Security mistake?
If you think you would benefit by understanding the best time to collect Social Security retirement benefits, you will benefit from having a Retirement Income Financial PlanTM. A RIFP will help you develop a personalized strategy to help you make the best choice for claiming Social Security. If you’d like to learn more about the RIFP visit our company website at www.RichardsFinancialPlanning.com There, you can also schedule a phone call to see if a RIFP would be right for you.
 Mischel, Walter, and Ebbe B. Ebbeson. “Attention in delay of gratification.” Journal of Personality and Social Psychology 16, no. 2 (1970), 329-337. https://doi.org/10.1037/h0029815
 Ortiz-Ospina, Esteban, and Diana Beltekian. “Why Do Women Live Longer Than Men?” Our World in Data. Last modified August 18, 2018. https://ourworldindata.org/why-do-women-live-longer-than-men
 Steven T. Mnuchin, Secretary of the Treasury, R. Alexander Acosta, Secretary of Labor, Alex M. Azar II, Secretary of Health and Human Services, and Nancy A. Berryhill, Acting Commissioner of Social Security. Status of the Social Security and Medicare Programs. Washington, DC: Social Security Administration, 2019. https://www.ssa.gov/oact/TRSUM/
 Zedaker, Hannah. “Benchmark Study Reveals 24-year Lifespan Variance, High Obesity Rates and Limited Health Care Access Across Harris County.” Impact. Last modified November 21, 2019. https://communityimpact.com/houston/spring-klein/health-care/2019/11/13/benchmark-study-reveals-24-year-lifespan-variance-high-obesity-rates-and-limited-health-care-access-across-harris-county/
 Roosevelt, Franklin D. Fireside Chat 7: On the Works Relief Program and Social Security Act. Charlottesville, VA: University of Virginia, April 26, 1935. https://millercenter.org/the-presidency/presidential-speeches/april-28-1935-fireside-chat-7-works-relief-program-and-social
 Social Security Administration. Monthly Statistical Snapshot, September 2019. Washington, DC: Social Security Administration, 2019. https://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/2019-09.pdf
 United States Census Bureau. Current Population Survey. Washington, DC: United States Department of Commerce, August 22, 2019. https://www.census.gov/data/tables/time-series/demo/income-poverty/cps-pinc/pinc-01.html