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Is it Ever a Good Idea to Claim Social Security Early?
Greg Lavelle • Oct 11, 2021
We often remind our readers that claiming Social Security benefits earlier than full retirement age can result in smaller checks for the rest of your life. Likewise, waiting beyond full retirement age can actually help you earn larger checks - up to 8 percent larger for each year you wait, up to age 70.
So you might be wondering, “Is it ever a good idea to claim Social Security benefits early?” Actually, yes. In some cases it does make sense to go ahead and start receiving your checks before full retirement age.
You want to pay down debts before beginning withdrawals from your retirement plan.
You’ll need to live off of a combination of retirement savings, Social Security, and any other income that you’ve established for the rest of your life. But if you’re carrying significant debts into retirement, those can eat into your monthly budget. Claiming Social Security benefits now can help you pay down debts faster, and lower the amount that you eventually pay toward interest.
You’ve already banked your 35 highest-earning years.
Social Security payments are calculated based upon the 35 highest-earning years of your career. If you’ve already banked those years, you won’t increase your checks this way. However, claiming those checks before full retirement age will still mean that they are reduced a bit.
You need to quit working.
At some point, you might need to retire earlier than you had planned. Industry layoffs, health issues, and other factors can force a change of plans. The good news is that you can go ahead and start enjoying your retirement now. But you might simply need more funds in order to do so. In this case, you might claim Social Security early out of necessity.
You’ve cut down to working part time.
Some people choose to gradually cut back on work hours, and ease into retirement. If you’re only working part time, you might be able to claim Social Security benefits now. Some of your benefits will be withheld according to earnings, so let’s discuss this issue in depth in order to help you decide whether this choice is worth it.
You’re in poor health or have been diagnosed with a terminal illness.
In the event that you expect a shortened lifespan, it usually makes sense to go ahead and claim your Social Security benefits now. After all, checks stop when you pass away, unless you have survivors entitled to benefits.
No one is relying upon your benefits.
After you pass away, it is possible for a surviving spouse or disabled child to draw at least part of your scheduled benefits. You would ordinarily want to maximize this amount as much as possible in order to provide for them. But if no one else will be relying upon your checks, you might as well claim them now if it otherwise suits you to do so.
Timing your claim for Social Security can be a complex issue, and certain other situations can be factored into this decision. Call us before you retire, so that we can help you decide upon the best time to file your claim.
Life insurance isn't one-size-fits-all. Just as your life evolves over time, so too should your insurance coverage. Whether you're starting your career, raising a family, or enjoying retirement, understanding how to tailor your life insurance policy to your current life stage is essential for ensuring adequate protection for you and your loved ones. Starting Out: Young Professionals As a young professional just starting out in your career, life insurance might not be at the top of your priority list. However, this is the ideal time to secure coverage, as premiums are typically lower when you're young and healthy. A term life insurance policy can provide affordable protection for your loved ones in the event of your untimely passing while also allowing flexibility to upgrade to permanent coverage later on. Growing Family: Parents and Homeowners For parents and homeowners, life insurance becomes even more crucial. You want to ensure your family is financially secure and able to maintain their standard of living if something were to happen to you. Consider a combination of term and permanent life insurance to cover immediate expenses, such as mortgage payments and childcare costs, as well as long-term financial needs like college tuition and inheritance planning. Midlife Milestones: Empty Nesters and Career Climbers As your children grow up and become financially independent, your insurance needs may shift. You might choose to adjust your coverage to reflect your changing financial obligations and goals. This could mean reducing coverage amounts or transitioning to a policy with cash value accumulation features, such as whole life insurance, to supplement retirement savings and leave a legacy for your heirs. Retirement: Golden Years and Legacy Planning In retirement, life insurance can still play a valuable role in your financial plan. While your need for income replacement may decrease, you may still want coverage to cover final expenses, estate taxes, or leave a financial legacy for your loved ones. An insurance policy with guaranteed death benefits, such as universal life insurance, can provide peace of mind and help protect your assets for future generations. Review and Adjust Regularly Regardless of your life stage, it's essential to review your life insurance coverage regularly to ensure it continues to meet your needs. Major life events, such as marriage, divorce, birth of a child, or career changes, may warrant updates to your policy. Working with a trusted life insurance broker can help you incorporate these changes into your long-term plans and make informed decisions about your coverage. Life insurance is a vital component of your financial plan at every stage of life. Meet with us now and regularly in the future so that we can help you evaluate and adjust your life insurance policy to ensure that it truly meets your needs.
Receiving a notice from the IRS for an audit can be a nerve-wracking experience. The time, effort, and potential financial consequences make it a situation you'd rather avoid. Fortunately, many audits stem from avoidable errors. Here's how you can avoid the five most common audit triggers and keep your tax returns in the clear. Ensure You Report All Income Income discrepancies are a major red flag for the IRS. While taxes are typically withheld from regular wages, other sources of income, like business earnings or capital gains, may not have taxes automatically deducted. Be vigilant in accurately reporting all sources of income, whether you receive a 1099 form or not. Document and report any non-wage income meticulously to prevent underreporting. Explain Significant Income Fluctuations Significant fluctuations in income from year to year can draw the IRS's attention. If your income varies widely, provide explanations or notes with your tax filings. Whether it's due to changes in business circumstances or other factors, clarifying these fluctuations can help prevent misunderstandings. Document Business Losses Carefully While it's common for businesses to experience losses, chronic or substantial losses can raise eyebrows at the IRS. Keep detailed records of your business finances, especially in the early years. Additionally, if you operate a sole proprietorship, ensure your business activities are distinguishable from hobbies to justify loss deductions. Support Your Deductions Certain deductions, such as large charitable contributions or home office expenses, may attract scrutiny. Be prepared to provide supporting documentation for all deductions claimed on your tax return. Thorough records can help substantiate your deductions and alleviate concerns during an audit. Accurately Value Assets For estate tax returns, undervalued assets are a common trigger for audits. When valuing assets without a public market price, seek multiple appraisals from qualified professionals. Having multiple valuations can strengthen your position and minimize the risk of an audit. Remember, even if you enlist professional help for your taxes, the responsibility for accuracy ultimately lies with you. Review your tax returns carefully before signing them to ensure everything is in order. Understanding the Different Types of Audits IRS audits come in three main varieties, each with its own level of intensity. Correspondence Audit. Conducted through the mail, this audit is often triggered by missing information or minor discrepancies. Office Audit. Requires a visit to an IRS office, typically for more complex tax returns or multiple disputed items. Field Audit. The most comprehensive type, conducted in person at your home or business, involves a thorough examination of your return. Regardless of the type, the IRS will provide a written request for specific documents beforehand. By being proactive and thorough in your tax reporting, you can minimize the risk of an audit and ensure a smoother process if one does occur.
