55% of Americans Risk Crucial Social Security Mistakes

Although Social Security is a critical source of income for most seniors, it's also a misunderstood benefits program because there are a lot of complicated rules associated with it. Unfortunately, not knowing all of the specific details could be a big problem because it could lead to bad decisions that affect monthly and lifetime benefits.

One recent study highlighted the risks that Americans are facing when they don't take the time to understand Social Security. It revealed that the majority of workers are potentially at risk of not getting the full amount of benefits they could from the retirement benefits program -- and this could affect their future.

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Far too many Americans are confused about Social Security

According to research from Allianz Life, 55% of Americans have admitted they are in the dark about how Social Security benefits work. This group of Americans doesn't know how their benefits will fit into their retirement planning despite the fact that 46% of all survey respondents said they were worried about maxing out Social Security income as retirees.

The Allianz Life study also revealed that only 39% have plans for how they will take their benefits in retirement, while over half (55%) are wrong about their full retirement age.

These are fundamentally important facts that every retiree needs to know to make informed decisions about where their money will come from and how much their Social Security benefits could be at different claiming ages.

Here are the key Social Security facts that everyone needs to know

If you are in the dark about your Social Security benefits, this could pose a problem because you may not know how much you must invest in your retirement plans to supplement your income. You could also end up leaving money on the table that you need or receiving benefits that are lower than you anticipated.

To make sure this doesn't happen to you, here are a few very important facts about Social Security that you must know.

Benefits are designed to replace around 40% of pre-retirement income

This is not enough for most people to live on, so you can't count on Social Security as a sole income source. You need to make sure you have money in a 401(k) or other retirement plan to supplement your benefits. Ideally, you'll be able to replace another 40% or so of your income at a safe withdrawal rate.

You can claim benefits between 62 and 70, but must wait until your FRA to avoid penalties

Your full retirement age is 67 if you were born in 1960 or later. If you claim benefits at FRA, you'll get your standard benefit equal to a percentage of average earnings over 35 years. If you claim before that, you will get hit with early filing penalties. If you claim after, you can boost your income with delayed retirement credits.

Most people benefit by waiting until 70

Research has shown that around 7 in 10 retirees end up with more lifetime benefits if they wait until 70 to claim. You may still decide to claim early, but be aware that you'll reduce the chances of maxing out benefits. Early claims also lower the survivor benefits your spouse would collect after your death if you were the higher earner.

You may be taxed on benefits

Taxes apply if your provisional income (half of Social Security plus all taxable and some non-taxable income) exceeds $25,000 for a single filer and $32,000 for a joint filer. Roth IRA and Roth 401(k) distributions don't count as provisional income.

Working while collecting Social Security could mean forfeiting some benefits

This is an issue if you work before you have reached full retirement age. The threshold amount you can work without losing benefits changes over time based on inflation, and benefits are recalculated at FRA, so you get the money back eventually if you miss benefits.

By understanding these basic facts, you can make more informed choices about what Social Security benefits will do for you and when you should claim them. There may be a lot more you need to know depending on your situation, but this is a good starting point.

Be sure to do your research, especially if you are claiming spousal benefits. And don't claim Social Security until you understand the details for how your income is determined and what role your benefits will play in supporting you as a retiree.

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