How To Avoid Costly Mistakes When Filing For Social Security

Social Security is one of many Americans’ most significant retirement income sources. However, navigating the complex program can be challenging, and even small mistakes can result in significant financial loss. The Government Accountability Office did a study and found that millions of Americans are not receiving their full Social Security benefits because of application errors.

Whether you are nearing retirement age or just starting to plan for your future, avoiding common Social Security mistakes is critical to maximizing your benefits. From not understanding how benefits are calculated to claiming benefits too early, there are many pitfalls to avoid.

By understanding the program and following these strategies, you can help ensure you make the most of your Social Security benefits and achieve a secure retirement.

Here are the most common mistakes:

#1 Not understanding how your benefits are calculated

The first mistake to avoid is not understanding how Social Security benefits are calculated. The Social Security benefits you receive are determined by your highest 35 years of earnings. If you have not worked for 35 years, zeros will be factored into the calculation, which can lower your benefits. Therefore, it is essential to ensure that you have worked for at least 35 years or to consider strategies that can boost your earnings, such as working longer or increasing your income.

#2 Claiming your benefit to early

Another common mistake is claiming Social Security benefits too early. It is possible to claim Social Security benefits at 62, but doing so can permanently reduce benefits. For example, if you claim benefits at age 62, you will receive a reduced benefit of up to 30% for the rest of your life compared to what you would have received if you had waited until your FRA, full retirement age (FRA). Based on your birth year, your FRA ranges from 66 to 67, and delaying your benefits past your FRA can result in an even higher benefit amount. Therefore, it is important to carefully consider your financial situation and future plans before deciding when to claim benefits.

#3 Spousal Benefits

Another mistake to avoid is not considering spousal benefits. Married or divorced individuals who have been married for ten years may be eligible for spousal benefits. These benefits can provide up to half your spouse’s benefit, even if you have never worked. A divorced person may qualify for benefits based on the earnings history of their ex-spouse. To maximize your benefits, you should consider coordinating with your spouse to determine the best-claiming strategy to maximize your combined benefits.

#4 Taxes

One of the most significant mistakes to avoid is not factoring in taxes. Social Security benefits can be taxed, depending on your income level. If your combined income, which includes your adjusted gross income plus non-taxable interest and half of your Social Security benefits, exceeds certain thresholds, up to 85% of your benefits may be subject to federal income tax. Therefore, it is essential to factor in taxes when planning for retirement and to consider strategies to minimize your tax liability, such as investing in tax-efficient accounts like Roth IRAs.

#5 Working

Another mistake is not considering the impact of working while receiving benefits. If you claim benefits before your FRA and continue working, your benefits may be reduced if you earn more than a certain amount. For 2024, the earnings limit is $21,240. Earning more than this, your benefits will be reduced by $1 for every $2 over the limit. Once you reach your FRA, there is no earnings limit, and you can work and collect full benefits. Therefore, it is essential to consider the impact of working on your Social Security benefits and to adjust your retirement plans accordingly.

#6 Overall impact of Social Security

Finally, one of the most significant mistakes is not understanding the impact of Social Security on your overall retirement plan. Social Security is just one piece of your retirement puzzle, and it is essential to consider how it fits into your comprehensive financial plan. You should evaluate your retirement goals, including your desired lifestyle and expenses, and determine how Social Security benefits include in your plan. Having a comprehensive retirement plan that considers all your income sources, including Social Security, can help make sure that you have the resources you need to live comfortably in retirement.

In conclusion, Social Security is a critical part of many Americans’ retirement income, but navigating the program can be tricky. By avoiding these common mistakes and following these strategies, you can help ensure that you maximize your Social Security benefits and have a secure retirement.

How to avoid these mistakes

One important resource to help you navigate the Social Security program is the Social Security Administration (SSA) website. The SSA website provides a wealth of information on Social Security benefits, including calculators, FAQs, and a My Social Security account where you can view your earnings history and estimate your benefits. Additionally, you can contact the SSA by phone or in person at a local office for assistance with your Social Security questions.

Another helpful resource is a financial advisor who specializes in retirement planning. A financial advisor will evaluate your retirement goals, develop a comprehensive retirement plan, and guide you on maximizing your Social Security benefits. A financial advisor can also help you factor in taxes, inflation, and other important considerations to help ensure that you have a secure retirement.

Ultimately, avoiding these common mistakes and following these strategies can help you maximize your Social Security benefits and achieve your retirement goals. Planning, understanding the program, and working with knowledgeable professionals can help ensure a financially secure and comfortable retirement.