9 Social Security Mistakes That Could Be Costing You Money

Social Security income is critical to most American retirees, with tens of millions relying on it. Therefore, it’s important to understand the program well, to avoid costly blunders.

Here’s a quick look at a handful of common Social Security mistakes to avoid.

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1. Expecting more than you’ll get

If you’re thinking that you need about $60,000 in annual income in retirement and that Social Security should provide much or all of that, think again. As of June, the average monthly retirement benefit was just $2,084 — or about $25,000 annually. If your earnings were above average, your benefits will be, as well, but not by that much.

2. Expecting too much from cost-of-living adjustments (COLAs)

You may be happily looking forward to nearly annual cost-of-living adjustments (COLAs), but don’t expect them to make you much richer. They’re based on inflation rates and are designed to help you keep up with inflation, not surpass it. And for many retirees, the inflation rate used by the Social Security Administration (SSA) will be lower than the actual rate they experience, due to fast-rising costs such as healthcare.

3. Not working for at least 35 years

It’s important to know that your future Social Security benefits are based on your earnings in the 35 years in which you earned the most. So if you’ve only got a work history of, say, 30 years, there will be five zeroes factored into the calculation. Try to work at least 35 years, if you can.

4. Not reviewing your earnings record

And check to make sure the SSA’s record of your earnings is correct, too. Set up a my Social Security account, and you will be able to review it. If you spot any errors, get them fixed. Having any missing income will result in lower benefits than you have earned.

5. Claiming your benefits at a suboptimal time

Here’s a big mistake: Not claiming your benefits at the best time. What’s the best time? Well, for most people, it’s age 70. If you delay claiming until age 70, you’ll maximize those benefits — and the COLAs you get, too. Understand, though, that for some people, claiming early is better. Their checks will be smaller, but they will get more of them, and if they are in poor health or simply need that income as soon as possible, they should probably go ahead and claim before age 70.

6. Not coordinating with your spouse

If you’re married, it’s important to have a joint claiming plan. For example, don’t think that you can both get by if you both claim your benefits early — because when one of you dies, the survivor will only receive one of those two benefits — whichever is bigger. Thus, if possible, it can be smart to delay claiming the higher earner’s benefit to maximize it.

7. Expecting to not be taxed on your benefits

It’s true that most states do not tax Social Security benefits. But eight states do tax it — and so does the federal government. Based on your combined income, which includes your adjusted gross income (AGI), non-taxable interest, and half of your Social Security benefits, you may be taxed by Uncle Sam on as much as 85% of your benefits.

8. Expecting to keep all your benefits if you’re still working

Another misconception is that you can work and collect benefits at the same time. Once you reach one year past your full retirement age (66 or 67, depending on your birth year), you can do so without any issues. But if you claim benefits earlier than that, the SSA will withhold $1 of every $2 or $3 that you earn. That’s not quite as terrible as it sounds, though, because withheld sums are added back, resulting in higher benefits later.

9. Ignoring notices from the Social Security Administration

Finally, don’t ignore communications from the SSA. For example, if you’re working and haven’t yet reached your full retirement age, you will need to report your earnings to the SSA. If you don’t do so properly, you may end up facing a penalty of as much as 50% of your monthly benefit. The SSA will likely inform you of the problem, giving you a chance to clear things up. Ignoring that could be costly.

These are some of the most common and costly Social Security blunders you can make. Now that you know about them, though, you can probably avoid a lot of headaches — and financial losses.

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