Social Security remains the largest source of retirement income for many retirees, making it crucial for everyone to grasp its fundamentals, even if you’re not yet eligible.
This week on Better Money, Eric Hogarth, CFP® discusses four essential facts you need to understand about Social Security.
#1. The Importance of Social Security
Whether it’s your entire retirement income or just a portion, Social Security impacts almost every American. Educating yourself on the system can prevent costly mistakes. Remember, some people might not receive benefits, but understanding the system is vital to avoid penalties.
#2. Timing Matters
When you choose to start taking benefits can significantly affect the amount you receive. If you begin collecting early, at age 62, you will receive less money than if you wait until your full retirement age of 66 or 67. Starting early can also lead to withheld benefits if your earnings exceed a certain threshold. However, if you wait until your full retirement age, you can continue working without facing penalties, maximizing your benefits.
#3. Medicare Premiums Impact
Increases in Medicare premiums can eat into your Social Security benefits, even with cost-of-living adjustments. This can be discouraging as rising living costs may offset any increases in benefits. It’s essential to stay mindful of these potential deductions to better plan your retirement finances.
#4. Taxes on Social Security Benefits
Up to 85% of your Social Security benefits might be taxable, depending on your income level. This so-called “cliff tax” means that surpassing a certain income threshold by even $1 could push you into a higher tax bracket, affecting all your benefits. Knowing these numbers and seeking professional advice from your financial advisor can help you navigate these complexities and avoid unexpected tax burdens.
Final Thoughts
Social Security is a vital component of retirement planning, alongside other forms of savings. By understanding these key points and seeking expert advice, you can make informed decisions and optimize your retirement benefits, ensuring a more secure and comfortable future.
Information presented in our podcasts is considered current as of the created date. Over time, some information presented may become stale. We recommend you consult with your Financial Professional before making any changes based on information contained here.
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