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Social Security: Common Mistakes and Misperceptions

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I find that retirees often have erroneous beliefs of Social Security and are blind to planning opportunities in claiming their benefits. Elaine Floyd, CFP is one of the foremost experts on Social Security planning within the financial planning community. In a recent newsletter she listed common mistakes both retirees and advisors make in addition to common misperceptions. These are posted below.

3 of the most common mistakes RETIREES make:

  1. Thinking of 62 as being "Social Security age" without realizing the penalties they pay by claiming early benefits. 
  2. Filing for benefits without understanding all the ramifications as to spousal benefits, survivor benefits, the earnings test, etc. 
  3. Failing to consider the lifetime value of Social Security over a long life expectancy and how it provides longevity insurance in the event of a very long life.

3 of the most common mistakes ADVISORS make:

  1. Focusing too much on the breakeven age without considering the importance of income at advanced ages, especially for surviving spouses. 
  2. Letting clients justify early filing at 62 for irrational reasons ("Social Security could go broke; I want my money now").
  3. Failing to fully understand all the rules for spousal and survivor benefits—that is, who can do what and when; knowing just enough to be dangerous.

3 of the most common "misperceptions" regarding Social Security planning:

  1. That you can do it without a calculator. People try to develop rules of thumb, but there are too many permutations of spouses' ages and benefit amounts to try to guess who should do what and when. 
  2. That people can get all the help they need from SSA personnel. SSA workers look at what benefits people are entitled to right now. They do not do long-range planning. 
  3. That Social Security exists in a vacuum. You have to consider all the other aspects of a client's financial plan, including IRAs, pensions, taxes, etc.

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