3 Social Security Strategies That Could Sorely Backfire on You

3 Social Security Strategies That Could Sorely Backfire On You

You’ll probably end up relying on Social Security quite a bit in retirement. It may not end up being your only source of income, but chances are, those monthly benefits will play a significant role in your long-term finances. And so it’s important to get as much money out of Social Security as you can.

Meanwhile, it’s a good idea to devise a filing strategy that leads to more financial stability throughout your retirement. But while these strategies might seem savvy, they could end up causing you to lose money, not gain it.

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1. Claiming benefits early so you can invest

You’re entitled to your full monthly Social Security benefit based on your wage history once you reach full retirement age (FRA), which is either 66, 67, or somewhere in between based on your birth year. But you’re allowed to sign up for benefits starting at age 62.

If you go that route, you’ll end up with a reduced monthly benefit — generally for life. But if you’re a seasoned investor, you may be inclined to use those benefits to build a portfolio of assets that could gain a lot of value.

It’s a good strategy in theory. But do remember that even smart investors can get tripped up by a volatile, underperforming market.

Just look at what’s happened to portfolios over the past 10 months. Many people are seeing year-to-date losses in their portfolios due to a bear market that caught many investors by surprise. And even if you’re great at vetting stocks or exploring alternative assets, you could end up losing money, not gaining it, by slashing your Social Security benefits in the hopes of scoring a high return on them.

2. Delaying your filing without considering your health

FRA is when you can start to collect your full monthly Social Security benefits based on your earnings history. But for each month you delay your filing past FRA, your monthly benefits get a lift.

Now you can only accrue delayed retirement credits until age 70. But if your FRA is 67, waiting that long means boosting your benefits by 24% — for life.

That strategy works well when you’re healthy and expect to live a long life. But if you have major health issues going into retirement, and you’re therefore not as likely to live a long life, then you could end up losing out financially by postponing your filing.

3. Delaying a spousal benefit

When you’re claiming Social Security benefits based on your own earnings record, delaying them results in a boost. But that rule doesn’t apply to spousal benefits — benefits you claim on a current or former spouse’s record.

There’s no sense in delaying a spousal benefit claim beyond your FRA if you have the option to sign up at that point. And if you hold off, you could end up losing out on money you were otherwise entitled to.

Think your strategies through

Certain Social Security strategies might seem viable when in reality, they aren’t. That’s why it’s a good idea to read up on Social Security — a lot — and learn the program’s various rules. Doing so could prevent you from making a costly mistake — and regretting it throughout your senior years.

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