Since many choices about Social Security are up to you, it's possible to make less than optimal decisions.
Navigating Social Security can be tricky. While it’s a crucial part of retirement income for most Americans, it’s easy to make mistakes that can cost you thousands of dollars over the course of your retirement. Whether it’s claiming too early, misunderstanding spousal benefits, or failing to plan for taxes, even minor missteps can have lasting financial consequences.
In this article, we’ll walk through some of the most common Social Security mistakes and, more importantly, how you can avoid them.
Claiming Benefits Too Early
One of the biggest mistakes people make is claiming Social Security benefits as soon as they’re eligible, which is at age 62. While getting money sooner can be tempting, claiming early has a significant downside: your monthly benefit will be reduced. For every year you claim before your Full Retirement Age (FRA), your benefit is reduced by about 6.67% per year, or up to 30% if you claim at 62.
Claiming early can make sense if you have health concerns or financial needs. Still, it can leave you less income in the long run - especially if you live longer than expected. If you’re in good health and can afford to wait, delaying Social Security until your FRA or even up to age 70 can significantly increase your monthly benefits.
Overlooking the Benefits of Delaying
On the flip side of claiming too early, many retirees don’t realize how much they stand to gain by waiting. If you delay claiming beyond your FRA, your benefits increase by about 8% annually until age 70. That means by waiting until age 70, you could increase your monthly benefit by up to 24-32%, depending on your FRA.
Delaying benefits can be particularly advantageous if you expect to live into your 80s or beyond. It also provides more financial security in the later stages of retirement, when healthcare costs and other expenses may rise.
Misunderstanding Spousal and Survivor Benefits
Spousal and survivor benefits are often overlooked or misunderstood, yet they can significantly affect the total amount of Social Security income available to a household.
Understanding how these benefits work (and when to claim them) can help maximize your total household Social Security income.
Working While Claiming Early Benefits
If you plan to continue working after claiming Social Security, be cautious about claiming before your Full Retirement Age. Social Security may reduce your benefits if you claim early and earn more than the annual earnings limit ($23,400 in 2025). For every $2 you earn over the limit, $1 is withheld from your benefits.
Once you reach your FRA, you can work without any reduction in benefits, but if you claim before that and plan to keep earning, it may be worth waiting to claim. Any benefits withheld due to earnings are eventually added back into your benefit calculation once you reach FRA, but it’s essential to know how working can affect your benefits in the meantime.
Not Factoring in Taxes on Benefits
Many retirees are surprised to learn that Social Security benefits can be taxed. Whether your benefits are taxable depends on your provisional income, which includes your adjusted gross income, nontaxable interest, and half of your Social Security benefits.
If your provisional income exceeds certain thresholds, up to 85% of your benefits may be taxable. Retirees who don’t plan for this can pay more taxes than expected, reducing their overall retirement income.
One way to minimize taxes on Social Security benefits is to manage your other income streams carefully. For example, withdrawing from Roth IRAs (which don’t count as taxable income) or delaying Required Minimum Distributions (RMDs) from traditional retirement accounts can help keep your taxable income - and thus the taxes on your Social Security - lower.
Ignoring Life Expectancy in Your Strategy
When deciding when to claim Social Security, it’s important to consider your life expectancy. If you come from a family with a history of longevity or are in good health, delaying Social Security can provide higher benefits over a longer period. If you expect to live into your 80s or 90s, waiting until age 70 to claim could maximize your lifetime income.
However, claiming earlier may make sense if you have health concerns or a shorter life expectancy. In this case, it’s important to weigh the benefits of receiving income sooner against the reduction in monthly benefits.
Failing to Review Your Social Security Statement
It’s crucial to review your Social Security Statement periodically to ensure that your earnings history is accurate. Your benefits are calculated based on your top 35 earning years, so any errors in your earnings record could reduce your monthly benefit.
You can check your Social Security Statement online by creating a mySocialSecurity account. Reviewing your statement allows you to verify that your earnings have been correctly recorded so you don’t miss out on any benefits you’re entitled to.
Forgetting About Divorced Spousal Benefits
If you’re divorced, you may still be eligible for spousal benefits based on your ex-spouse’s earnings record. To qualify, you must have been married for at least ten years and be unmarried when you claim benefits. If your ex-spouse qualifies for Social Security benefits, you could be eligible for up to 50% of their benefit - without affecting their payments.
Divorced spousal benefits are often overlooked, but they can provide a valuable source of retirement income, especially if you were out of the workforce for a significant period during the marriage.
Key Points
The Takeaway
Avoiding these common Social Security mistakes can help you maximize your benefits and ensure financial stability throughout your retirement. The decisions you make - when to claim, how to coordinate benefits with your spouse, and how to manage taxes - can have a lasting impact on your income. Planning carefully and staying informed can avoid costly mistakes and maximize your Social Security benefits.
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