What the New Analysis Reveals: 10 Costly Missteps
The latest data on retirement trends shows that while Social Security is a lifeline for many, a surprising number of retirees are leaving thousands of dollars on the table over their lifetimes. This isn’t due to a fault in the system itself, but rather a series of common misunderstandings and planning mistakes. Think of these as hidden Social Security rules costing money. Let’s walk through the ten most significant Social Security mistakes seniors make, so you can feel empowered and informed.
Mistake #1: Claiming Benefits at the Earliest Moment (Age 62)
The temptation is understandable. After a lifetime of work, you’re eligible for benefits at age 62 and you’re ready to claim them. However, claiming this early comes at a significant cost. If your full retirement age (FRA) is 67, claiming at 62 means you accept a permanent 30% reduction in your monthly benefit. For every year you wait after 62, up until age 70, your benefit grows. Waiting until age 70 can result in a monthly check that is over 75% larger than what you would have received at 62. While claiming early is the right choice for some due to health or financial necessity, doing so without understanding the permanent reduction is a costly error.
Mistake #2: Not Maximizing Your 35-Year Earnings Average
Your Social Security benefit is calculated based on your 35 highest-earning years, adjusted for inflation. Many people don’t realize that if you have fewer than 35 years of work history, the Social Security Administration (SSA) will enter a zero for each missing year. Even one or two “zero years” can significantly pull down your average and reduce your lifetime retirement benefits. Working an extra year or two, even part-time in retirement, can replace a zero or a low-earning year from your youth, giving your final benefit amount a meaningful boost.
Mistake #3: Failing to Check Your Earnings Record for Errors
The SSA keeps a record of your lifetime earnings, and this record is the foundation of your benefit calculation. Mistakes happen. A name change, a typo in a Social Security number, or an employer’s reporting error could lead to some of your earnings not being credited to your account. An error-riddled record can lead to a permanently lower benefit. It is crucial to create a “my Social Security” account on the SSA website and review your earnings record every few years to ensure it’s accurate.
Mistake #4: Misunderstanding Spousal Benefits
This is a major source of missed money, especially for spouses who had lower earnings or spent time out of the workforce to care for family. You may be entitled to a benefit of up to 50% of your spouse’s full retirement benefit. The SSA will pay you your own benefit or the spousal benefit, whichever is higher. Even if you are divorced, you may still be able to claim benefits on your ex-spouse’s record if you were married for at least 10 years and have not remarried. This is a vital piece of senior finance that many are unaware of.
Mistake #5: Ignoring Potential Survivor Benefits
When a spouse passes away, the surviving spouse is often entitled to survivor benefits. A widow or widower can receive up to 100% of their deceased spouse’s benefit amount. A common mistake is for the surviving spouse to immediately claim their own, often smaller, retirement benefit. A better strategy can be to claim the survivor benefit first, while allowing your own retirement benefit to continue growing until age 70, at which point you can switch to your own, now much larger, benefit.
Mistake #6: A Lack of Spousal Coordination
Married couples often think of their Social Security claims as two separate decisions. This is a mistake. A coordinated strategy can maximize a couple’s total lifetime income. For example, it often makes sense for the higher-earning spouse to delay claiming their benefit for as long as possible (until age 70). This not only maximizes their own check but also creates a larger potential survivor benefit for their spouse, providing a crucial safety net for the future.
Mistake #7: Not Planning for Taxes on Your Benefits
It’s a surprise to many retirees, but your Social Security benefits can be taxable. If your “combined income” (your adjusted gross income + nontaxable interest + half of your Social Security benefits) is over a certain threshold, a portion of your benefits will be subject to federal income tax. For 2023, these thresholds start at $25,000 for an individual and $32,000 for a married couple filing jointly. Understanding this can help you plan other retirement withdrawals more strategically to manage your tax burden.
Mistake #8: Earning Too Much While Claiming Early
If you decide to claim your benefits before your full retirement age and continue to work, be aware of the retirement earnings test. If your earnings exceed a certain annual limit ($21,240 in 2023), the SSA will temporarily withhold $1 in benefits for every $2 you earn above that limit. The money isn’t lost forever—it’s added back to your benefit once you reach FRA. However, it can cause a sudden and unexpected drop in your monthly income if you’re not prepared for it.
Mistake #9: Underestimating the Power of COLAs
Social Security benefits are adjusted each year to account for inflation through a Cost-of-Living Adjustment (COLA). When you delay claiming your benefits, you’re not just getting a larger starting check; you’re also ensuring that every future COLA is applied to that bigger base amount. Over a 20- or 30-year retirement, the compounding effect of COLAs on a larger initial benefit can add up to tens of thousands of extra dollars.
Mistake #10: Believing Social Security Will Be Enough
Perhaps the biggest mistake is viewing Social Security as a full retirement plan. It was never designed to be. It is a social insurance program intended to provide a foundational income floor. On average, it replaces about 40% of pre-retirement earnings. Relying on it as your sole source of income is a recipe for financial strain. A healthy retirement plan includes personal savings, pensions, and investments to supplement your Social Security benefits.
