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When it comes to Social Security, one small mistake can botch a lifetime’s worth of income.
As tempting as it may be to claim your retirement benefit as soon as you’re eligible at age 62, choosing to do so could put a dent in your cash flow.
Few people seem to be aware of this, according to a recent survey by Nationwide Retirement Institute.
Close to 70% of the polled individuals erroneously identified the age at which they’d be eligible for full retirement benefits from Social Security, the institute found.
On average, participants incorrectly believed that they would be eligible for full benefits at age 63.
A total of 1,315 adults aged 50 or over took the survey online in February.
Another 26% said that if they claimed benefits early, then their benefits would increase once they hit full retirement age.
This is false.
“The misconceptions around Social Security are alarming,” said Tina Ambrozy, president of sales and distribution at Nationwide. “More than a quarter of participants thought that if they claimed earlier, they’d get a raise.
“That’s not true,” she said.
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Popular reasons for tapping income earlier than expected included “needing the money to pay for living expenses,” “supplementing income” and “because they were laid off,” Nationwide found.
“In some cases, people lost their job and they needed the money,” said Ambrozy. “In others, they had to pay for health-care costs.”
About 1 in 10 of those early filers tapped Social Security sooner rather than later because they were worried that the government would reduce or eliminate benefits.
More than 8 in 10 participants said they believed that the Social Security system needs a change.
Of those individuals, more than half called for a tax increase on high-income households. About as many sought reduced taxation of benefits.
Know your ages
In order to get the Social Security retirement benefit you’re entitled to, you must claim it at your full retirement age.
For individuals born between 1943 and 1954, full retirement age arrives on their 66th birthday.
“Full retirement age” ticks upward for people born in subsequent years, rising to age 67 for individuals born in 1960 or later.
It pays to wait. Retirees who wait until after full retirement age to claim are eligible for delayed retirement credits: an 8% increase to their benefit check for each year they defer, until they turn 70.
Even if you put off taking Social Security, it helps to start strategizing years before you leave work behind for good.
Consult a financial advisor to see how these retirement benefits work alongside your 401(k) plan, individual retirement account and other potential income sources.
“Ages 50 to 55 is about when you should start figuring out to make sure you’ve covered all of your bases,” said Ambrozy.