Social Security -- 5 costly mistakes

We've always taught that you should never count on Social Security for your retirement unless you want to live below the poverty line in complete squaller. Reviewing what this blogger has written just reinforces that thought. What he has written though is well worth reading.

Author James Mahaney recently emailed me a piece he co-wrote titled Innovative Strategies to Help Maximize Social Security Benefits. Part of this document lists the five costliest mistakes retirees make about Social Security. Here's the list and my comments on each point:

1. Underestimating the real value of Social Security. Key quote: "Some never take charge of this benefit [Social Security] because the discount the viability of the system in general. But whatever your personal beliefs are about the Social Security reform debate or a 'pay-as-you-go system', most new retirees have been paying into the Social Security system for many more years than they have contributed to their Defined Contribution plan. They can count on both as critical sources of retirement income."

Hey, is he talkin' to me? ;-)

I'm not going to ignore Social Security when I get to the age to "manage" it, I just have a hard time believing that it will be worth much in 25 years. I guess we'll see.

2. Rushing to collect, then regretting the reduced benefits for the rest of your life. Key quote: "And most [retirees] certainly didn't stop to think that they could potentially double their initial payments if they only waited until age 70."

I'm planning to wait as long as possible before drawing whatever Social Security has for me -- that's one advantage of not counting on it for anything (and saving myself accordingly).

3. Not understanding how one spouse's decisions affect the other one's benefits. Key quote: "In essence, the value of delaying Social Security 'lives on' as the higher benefit is passed on at death to a spouse. This is a wonderful way to protect a spouse from running out of money."

Good information here -- I never knew this. If you're close to retirement, you HAVE to read this piece.

4. Getting blind-sided by the "Tax Torpedo". Key quote: "The tax situation for the retiree is often worse than expected. Once a very low income threshold is met, every dollar received from an IRA causes up to 85% of a Social Security dollar to become taxed too."

Yikes! I had (mistakenly) thought that taxes would be much more of a non-issue in retirement. Guess again, huh?

5. Assuming that more control equates to more income. Key quote: "The inability to delay 'ownership' of their Social Security benefits may cost many retirees dearly."

Another great point -- and one that shouldn't be missed.

Like we have always said, you should never rely on Social Security for your retirement. These points above just add to our concerns. It is important for each one of you to take control of your finances and plan for the day when you no longer wish to work, or, if you plan to work forever, for that day when you slow down just a little.

For many of you, thoughts of retirement might seem to be so far off as to be unthinkable right now. It's time to change that thinking. Plan for everything and start right now!

Of course, we are always there to help!