The Biggest Mistakes People Make With Social Security

There isn’t a universal approach to ensure you’re comfortable and financially secure during your retirement years. Retirement planning is an ongoing process that evolves as your circumstances change. Your needs and resources are unique, so your retirement plan should be, too.

The same is true when it comes to planning for Social Security benefits. Your earnings history, age, family situation and health are all factors that come into play for Social Security. Failing to consider these factors can result in missed opportunities and money left on the table.

If you’re not certain how to start or adjust your retirement plan to account for Social Security, get professional advice from a trusted financial advisor.

You can create a personal financial plan that accounts for all your income streams, including retirement benefits as part of the long-term strategy.

Pensions and other retirement accounts like Roth IRAs or 401(k)s can have a substantial impact on the direction your plan takes. So, it’s important to have a comprehensive understanding of all your retirement income sources, public and private, to plan for the future. The goal of your retirement plan is to protect yourself. And with all your information accounted for, you can make choices that maximize your benefits.

According to a 2019 Go Banking Rates Survey, just over half of respondents could identify the correct range of Social Security benefits. That means almost half of the respondents didn’t know how much they could expect to receive from Social Security monthly. As a result, it can be difficult for them to maximize their benefits.

The amount of your Social Security benefits change based on your date of birth, your earnings and when you choose to start claiming your benefits. The Social Security Administration (SSA) offers a benefits calculator to give you an estimate of what your payments might look like.

More importantly, the SSA also creates easy-to-read Social Security statements and encourages you to review them annually. The statements include a bar graph of what your monthly estimated payments should look like depending on the age you start claiming benefits. Your statement also includes information about Disability, Survivor, and Medicare benefits, along with a history of your earnings.

You can view your Social Security statement online by signing into your account.

According to the Social Security Administration Fact Sheet, 90% of seniors over 65 received Social Security in 2022. Of that group, 12% of men and 15% of women relied on Social Security benefits for more than 90% their entire income. With a monthly benefit of $1,465 and an annual income of $17,580, it is not enough to live comfortably, according to the 2022 poverty guidelines.

Social Security is not designed to be your only source of retirement income. Take your lifestyle needs into account when creating or adjusting your retirement plan. That way, you can also build in a buffer against future health care costs and more.

If you are married, your Social Security benefits affect more than just yourself. Depending on your circumstances, your spouse could also be eligible to receive a monthly benefit on your account. If you file independently without taking your spouse into consideration, then you could deprive you and your spouse of an extra source of income.

Like all financial matters with potential ramifications, you should discuss when to claim Social Security benefits with your spouse. For example, it might make sense for one partner to claim the spousal benefit first to delay their own benefits and maximize payments. If you coordinate when to make your claims with your spouse, you can avoid either partner losing out while potentially boosting your income.

You can begin to collect Social Security at age 62. However, the longer you wait before collecting, the higher your monthly benefit will be. If you wait until 70 to claim benefits, you will receive the maximum payments allowed. But if you start drawing on Social Security too early, you’ll be locked into that lower payment for good.

For instance, the SSA’s sample statement outlines that the monthly benefit would be $1,465 if you started collecting at age 62, rise to $1,973 if you waited until age 66, and eventually hit $2,634 if you waited until age 70.

It’s important to check your Social Security statement while you are still working. Your benefit allotment is based on your 35 highest earning years, so as you continue to work and earn, the estimates of your benefit will change. This will give you a better idea of the best time to start claiming your Social Security benefits.

While claiming your monthly benefit too early is a common mistake, unfortunately, so is waiting too long to start. Even though the amount of your monthly benefit keeps increasing until age 70, the amount of time you have left to use it does not.

In 2023, the average life expectancy is 79.11 years, according to Macrotrends. That means if you wait too long to claim Social Security, you run the risk of having less time to spend the benefits you’ve paid into all your working life.

Your own health and financial standing will help you decide when to start taking your benefits. If your health is in good condition, you may want to postpone your claim; but if not, you might consider starting earlier. Remember, your Social Security benefit is not intended to be your only source of retirement income, so your other income streams will also play a factor.

Social Security benefits are considered taxable income. Neglecting to plan for tax time can be a serious mistake, especially if you have other retirement income.

Depending on your total retirement income, you could be taxed on 50% to 85% of your Social Security benefit. Your financial plan should account for that tax bite. This might entail setting extra money aside to cover tax, creating a trust or even making charitable donations.

You can work while collecting Social Security, but depending on when you start collecting, your benefit might be reduced until you hit your full retirement age, which is somewhere between 66 and 67 depending on your birth year and month.

You can retire at whatever age you choose, and you can begin to collect Social Security at 62. However, your full retirement age as determined by the SSA is when you receive your full retirement benefit.

Many seniors continue to work after retirement, whether it’s for financial security or intellectual stimulation. If you are under full retirement age in 2023, you can earn up to $21,240 without any impact on your Social Security benefit. Above that limit, SSA will deduct $1 from your monthly payment for every $2 you earn. However, if you have reached full retirement age, the limit increases to $56,520. After that limit, the SSA will deduct $1 for every $3 you make.

If you choose to factor in employment into your retirement plan, you can supplement your income even after you retire.

If you were married for 10 years, you can receive benefits on your spouse’s account, whether you are still married, divorced or widowed. However, if you remarry after your divorce, you are no longer entitled to any claim on your previous spouse’s account.

If you were counting on a spousal benefit from a former spouse to supplement your own Social Security benefits, but remarried in the interim, you won’t be able to collect from your ex’s account. However, if your second marriage has lasted longer than 10 years, you’ll be eligible for the spousal benefit from your second spouse.

Women still earn less than men overall — only 82 cents for every dollar men make, according to the U.S. Census Bureau. The gender pay gap continues to widen as women age, and since women generally outlive men by several years, the problem gets worse with time. Since your Social Security benefits are calculated on your earnings, that gap can have a noticeable impact on the size of your monthly payment.

Despite earning less overall, women may be eligible for more Social Security than they think. If you’re a woman who was married for 10 years, you might be eligible for spousal or survivors benefits, even if you are divorced or widowed.

You might also consider delaying your benefits to increase the amount of your monthly payment. This is a particularly effective strategy if you continue to work, since the size of your benefit will be calculated on your highest 35 years of earnings, which for women, may come in their later years.

Medicare and Social Security are complementary federal assistance programs, but they are administered separately by the Centers for Medicare and Medicaid Services (CMS) and the Social Security Administration respectively. Since you must enroll in Medicare through Social Security, it’s easy to mistakenly think you’re enrolled in both when you apply for Social Security. However, you must actively apply for Medicare.

Medicare is a federally funded health insurance program designed to defray medical costs for seniors 65 and over, as well as younger people with specific severe disabilities. Social Security, on the other hand, provides financial protection for retirement.

To enroll in Medicare, you must apply through the SSA. You can contact the SSA through phone at 1-800-772-1213 to apply. Once your application is approved, you’ll receive a Medicare card in the mail