#37 - 3 Social Security Mistakes Costing Retirees
Greetings!
One final “opening days'“ thank you to all who have tuned into the new podcast, Your Money Guide on the Side. It climbed as high as #10 this week for business podcasts, and ultimately, I am eager to add as much value as possible to your lives.
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Monday, March 17th’s Episode: On Killing Sacred Cows of Personal Finance: Or, Why I Don’t Love Bonds
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This Week: 3 Social Security Mistakes Costing Wealthy Retirees Thousands
I am not surprised that my most “viral” content in the past few months has been about Social Security. It is a topic fraught with complexity, confusion, and endless variables. Most people think of Social Security as a simple government benefit, but if you’re not strategic about how and when you claim it, you could be leaving hundreds of thousands of dollars on the table. Wealthy retirees, in particular, make critical mistakes that reduce their lifetime benefits, create unnecessary tax burdens, and force them to draw down other investments at the worst possible times. Here’s how to avoid those costly errors:
1. Do NOT Ignore the Tax Implications…
Many retirees assume that Social Security is tax-free. It’s not. And if your combined income (which includes IRA withdrawals, dividends, and rental income) exceeds $44,000 for married couples filing jointly, up to 85% of your Social Security benefits become taxable.
That’s a huge hit, especially when potentially paired with required minimum distributions (RMDs) from retirement accounts. Smart planning—like Roth conversions before claiming Social Security—can reduce this tax burden and keep more money in your pocket.
2. Not Having a Strategy That Works for You
There’s no universal answer to the question: “When should I claim Social Security?” The right age depends on your income strategy, other assets, and long-term goals.
Claim at 62, and you take a permanent 30% reduction in monthly benefits.
Wait until 70, and you get delayed retirement credits, increasing your benefit by 8% per year after full retirement age.
But delaying isn’t always the best move (as I’ve explored many times on my social channels.), and I continue to believe that if we ever decide solely based on “monthly” benefits, we’re missing the big picture: aggregate benefits. Additionally, if you wait until later, you might have to draw from taxable investment accounts to bridge the gap, eroding assets that could have compounded. Worse, you might not live long enough to break even.
3. Not Treating Social Security as Fixed Income
Unlike your portfolio, which is subject to market swings, Social Security is one of the few sources of guaranteed, inflation-adjusted income you’ll have for life. That makes it a powerful tool, especially in market downturns. (And no, you don’t need to write to me telling me it’s no longer guaranteed under Elon ;) )
Rather than selling investments in a down market, you can lean on your Social Security benefits to avoid locking in losses. This is why many financial planners recommend delaying Social Security if you have other assets, allowing you to maximize this stable, guaranteed income stream later in life. For me, I still value the early money, but that’s always and forever up to you!
Want More? The Podcast Goes Deeper.
I am growing tired of short form social media because of how limited the scope is, I like the newsletter slightly more because we can explore nuance further, and I am spending 99% of my time on the podcast because we can explore all of this in the most depth possible. So if you found this helpful, tune in to the podcast, Your Money Guide on the Side.
Stay focused on your long term goals, and have a great week.
Tyler
