Social Security benefits are one of the first things people think of when planning for retirement. Avoid these Social Security mistakes, so you can make the most of your benefits.
In this article:
- Collecting Social Security Benefits Before Your “Full Retirement” Age
- Not Creating a “my Social Security” Account
- Not Checking Your Income History
- Working for Less than 35 Years
- Not Coordinating with Your Spouse
- Collecting While Still Working
- Not Claiming Your Survivor Benefit
- Not Understanding Social Security Taxes
- Thinking Social Security Benefits Are Enough
Social Security Benefits: 9 Mistakes That Can Cost You Your Retirement
1. Collecting Social Security Benefits Before Your “Full Retirement” Age
What is FRA? Your full retirement age (FRA) is the point in your life where you can claim the full Social Security benefits you’re entitled to. This can be between the ages of 65 and 67, depending on your birth year.
- 1937 or earlier: 65 years
- 1938: 65 years and 2 months
- 1939: 65 years and 4 months
- 1940: 65 years and 6 months
- 1941: 65 years and 8 months
- 1942: 65 years and 10 months
- 1943-1954: 66 years
- 1955: 66 years and 2 months
- 1956: 66 years and 4 months
- 1957: 66 years and 6 months
- 1958: 66 years and 8 months
- 1959: 66 years and 10 months
- 1960 or later: 67 years
For every year before your FRA that you start collecting benefits, what you get shrinks by about 7%.
- If you started collecting them when you’re 62, and your full retirement kicks in at 67.
- You end up with 30% less than if you waited five more years.
- On the flip side, if you delay cashing in every year until you turn 70, you can get a check that’s 24% more.
2. Not Creating a “my Social Security” Account
If you haven’t set up your “my Social Security account” yet, start doing it now. Here are several reasons why you should do so:
- You can have an idea of how much you could get in benefits based on your earnings history.
- It’s where you find the Social Security Administration (SSA)’s records of what you earn and how much taxes end up in Social Security.
3. Not Checking Your Income History
Your income history dictates how much money you’re going to get in benefits. The SSA keeps track of this, and if you’ve set up your “my Social Security” account, you’ll be able to view your entire earning history.
Review these records once a year so you can find any discrepancies and have them fixed in time. If there are mistakes, call up the SSA and submit proof of your income, such as:
- Your tax return for that year
- Your W-2 form
- Payslips for that time period
Otherwise, when it’s time to claim those benefits, you might end up with less money than what you’re expecting.
4. Working for Less than 35 Years
Your Social Security benefits get calculated based on your average indexed monthly earnings (AIME).
What is your average indexed monthly earnings (AIME)? This is your average monthly income during 35 of your highest-earning years. It also contains adjustments for inflation.
If you worked for less than 35 years, the SSA considers every year you didn’t work as zero earnings, which can bring down this value. As a result, this can lead to your benefits reduced throughout your life.
If you worked for less than 10 years, you may not get Social Security checks at all. However, you may still qualify for the spousal benefit if your spouse qualifies for Social Security.
Try working at least 35 years as much as possible. If you exceed the 35-year threshold, your lowest-earning years will be dropped off and replaced with the higher-earning ones.
5. Not Coordinating with Your Spouse
If you’re single, this wouldn’t be an issue. You just need to decide when to start claiming benefits.
If you’re married, on the other hand, you must consider how your decision to claim benefits can affect your spouse’s benefits.
What strategy married couples can do depends on the income discrepancy between the two of you:
- If your income gap is large, the common strategy is for the lower-earning spouse to claim benefits at 62 (the earliest you can claim benefits). This can allow the higher-earning spouse to delay benefits until they reach 70.
- If you both earn roughly the same, you’re better off delaying at least until you both reach the full retirement age.
One thing to note, though, is while delaying primary benefits increases what you get, it doesn’t work the same way for spousal benefits.
6. Collecting While Still Working
If you earn too much money while you’re on benefits, and you haven’t reached your FRA, you can have your benefits deducted for every dollar that exceeds the income threshold. Worse, you can even end up paying taxes to your benefits.
Once you reach FRA, you can earn as much as you want without your benefits taking a hit.
7. Not Claiming Your Survivor Benefit
Widows or widowers who earn less than their spouse can claim survivor benefits based on their spouse’s earning records. You can claim this as soon as you turn 60, but you’ll have reduced benefits if you did so before your FRA.
Once you reach FRA, you could get 100% of what they were receiving at the time of death. You can still claim this even after remarrying as long as you’re not younger than 60 and were married for at least 10 years.
8. Not Understanding Social Security Taxes
What is Provisional Income? This is your gross income, excluding Social Security benefits, plus half of your Social Security benefits and interest.
If your provisional income is between $25,000 and $34,000 annually (if you’re single), or between $32,000 to $44,000 (if married and filing jointly), as much as 50% of your Social Security benefits are taxable. For those who earn more than that, as much as 85% of your benefits can be taxed.
9. Thinking Social Security Benefits Are Enough
Many retirees rely on Social Security benefits for as much as 90% of or even as their sole retirement income. The bad news is that Social Security is designed to account for around half your income.
Don’t just rely just on your Social Security benefits for your post-retirement cash. Make sure you have an emergency fund ready, and you open a retirement fund, such as an IRA, so you can rest easy and retire in comfort.
Social Security and retirement are part and parcel when planning for your golden years. Be sure to remember these things, so you can make the most of your Social Security benefits.
Don’t forget to download, save, or share this handy infographic for reference:
What was the worst Social Security mistake you made when planning for retirement? Share your experiences and lessons you learned in the comments section below.
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