Financial Red Flags and Scams to Watch Out For
As you manage your retirement finances, it’s crucial to be aware of bad actors and costly mistakes. Scammers often target seniors with promises that are too good to be true. Here are a few red flags to watch for.
1. “Secret” Tax Elimination Schemes
Be extremely wary of any “financial advisor” or online advertisement that promises to legally eliminate all taxes on your Social Security benefits using a secret government loophole or a complex insurance product. While the strategies we’ve discussed can significantly reduce or even eliminate your tax liability, there is no one-size-fits-all secret. These pitches are often fronts for high-commission, unsuitable financial products or outright scams designed to get your personal information.
2. Impersonation Scams from the IRS or SSA
A common and frightening scam involves a phone call, text message, or email from someone claiming to be from the IRS or the Social Security Administration (SSA). They may claim you owe back taxes on your benefits and threaten you with arrest, suspension of your benefits, or legal action if you don’t pay immediately with a gift card, wire transfer, or cryptocurrency. This is always a scam. For official information on Social Security and Medicare, visit SSA.gov and Medicare.gov. Federal tax information is at the IRS. These agencies will almost always initiate contact with you through official U.S. mail, not with a threatening phone call.
3. The Costly Mistake of Not Withholding Taxes
This isn’t a scam, but it’s a common mistake that can cause a lot of financial stress. If you calculate that your benefits will be taxable, you have two primary ways to pay that tax: make quarterly estimated tax payments to the IRS or request voluntary tax withholding from your benefits. Many people forget about this and are hit with a large, unexpected tax bill—and possibly an underpayment penalty—when they file their tax return. You can ask the SSA to withhold federal taxes from your payments by filling out Form W-4V, Voluntary Withholding Request. You can choose to have 7%, 10%, 12%, or 22% of your total benefit payment withheld. This automates your tax payments and provides peace of mind.
Disclaimer: This article is for informational purposes and is not a substitute for professional financial or tax advice. Consult with a certified financial planner or tax professional for guidance on your specific situation.
