Avoid These 6 Social Security Claiming Errors

Couple reviewing a social security statement listing benefits available.
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You could miss out on thousands in Social Security benefits by making one, or several, common mistakes people make when claiming Social Security. Mistakes include claiming your benefits too early and not understanding and claiming benefits that are available to you.

Claiming Too Early

You may claim Social Security retirement benefits before you reach your full retirement age. The full retirement age varies by the year of birth—which may be why many people are confused when they should claim. The earliest you may claim retirement benefits is at age 62, but full retirement age changes based on the year you were born. As an example:

  • For those born in 1940, full retirement is age 65½ years
  • Born in 1950 has full retirement at age 66
  • Retirement for people born in 1955 is 66 and 2 months
  • People born in 1960 or later see full retirement at age 67

The full retirement can change if the United States Congress mandates that change.

For every month that you claim benefits before your full retirement age, your full benefit will be reduced. As an example, someone who would receive $1,000 at full retirement and claims 50 months early could see that $1,000 payment reduced to $741—around 26%.

Not Knowing About the Earnings Limit

You can still work at the same time you receive social security retirement benefits, but don't earn above the yearly earnings limit. If you earn in excess of the limit (which is adjusted upward along with inflation each year), then your Social Security benefits will be reduced. The earnings limit is also based on your retirement claim age.

As of August 2019, the earnings limit for under full age recipients is $17,640 and the Social Security Administration (SSA) will reduce your total benefit by $1 for every $2 you earn above the limit amount in a year. For full age claimants, the limit increases to $46,920 and the SSA will only deduct $1 for every $3 over the limit.

People who think they can be fully employed and collect their Social Security benefits are often caught off guard when the Social Security office tells them they made too much money and they have to repay some of the benefits. Once you reach full retirement age, you can earn as much as you’d like with no reduction in benefits.

Thinking You Can Stop and Start Your Benefits

You can not turn off your Social Security benefits easily. If you change your mind about claiming within 12 months of first filing, you can repay all your benefits and things will reset as if you had never claimed.

However, you cannot simply stop your benefits and then choose to start again later. Avoid this issue by carefully planning early. Work with a financial planner to decide when you can stop working and when your Social Security benefits will start. Once they start, see this as a permanent income stream.

Being Unaware of Spousal Benefits

As a couple, if you coordinate the claiming of your Social Security benefits, you can often get more than if you each make your own independent decision. Most people look at when they should start their own benefits, but they don’t realize that depending on the differential in age and benefit amounts between them and their spouse, and if one of them were born January 1, 1954, or earlier, they might be able to claim a spousal benefit, while letting their own benefit continue to grow or vice-versa. Married couples miss out on thousands by not using this type of spousal benefit. 

Underestimating Your Potential Survivor Benefits

As a married couple, whichever of you receives the higher benefit amount, that is the amount that will continue for the longest spouse to live. This means it is important to maximize the benefit of the highest earner, as it can provide a powerful form of life insurance: inflation-adjusted income for as long as a surviving spouse needs it. Don’t claim early without considering the impact this may have on a long-lived spouse.

Neglecting to Pay Taxes on Your Benefits

Yes, your Social Security benefits will be taxed. There is a formula in the tax code that determines how much of your benefits will be taxed; somewhere between 0% and 85% of benefits received could be counted as taxable income. When you carefully determine which accounts to draw retirement income from in which order, and coordinate this decision with when you take Social Security, you can reduce the amount of taxes you pay over your retirement years. Unfortunately, many do not take the time to do this kind of withdrawal planning, and so they pay more tax than they would otherwise have to.

Fearing That You Will Run out of Money

In survey after survey, upcoming and existing retirees state their number one fear is running out of money in retirement. A smart Social Security claiming strategy can help protect against this outcome. Yet people claim with no analysis. Social Security benefits will provide over $1 million in benefits for many couples. Would you make a decision about $1 million with no analysis?

You can use a Social Security calculator to help you avoid costly Social Security mistakes. It’s great to check out the calculators, and we recommend you play around with them, but coordinating when and how you take retirement withdrawals in a tax-efficient manner requires a great deal of expertise. Consider finding a good retirement planner before you claim.

Start your retirement planning well before retirement. Work with a financial planner decades before you reach retirement age if you're in the earlier years of your career. If you're not, that's OK — find a fee-only planner to put together strategies that start today.