There are tons of articles (including some by yours truly) about what you can do to maximize your Social Security benefits. But often, what you don't do is just as important. People make simple mistakes every day without realizing they've potentially cost themselves tens of thousands of dollars in benefits.
The good news is, you can correct many of these mistakes if you recognize them and take the appropriate action. Let's look at a few of the most common mistakes and how you can fix them before it's too late.
1. Putting incorrect information on your employment documents
If you change your legal name, make sure to tell your employer promptly so they can update it in their records. Whatever name your employer has on file for you is what will show up on your tax paperwork, and this is where the Social Security Administration (SSA) gets its information on how much in Social Security taxes you've paid to the IRS.
If you change your name with the SSA but not with your employer, wires can get crossed and your income information may not transfer over correctly from the IRS. This leaves the SSA thinking you made less money than you actually did that year, or possibly no money at all. When it comes time to calculate your Social Security benefit, the SSA won't count the missing income and your checks will be smaller than they should be as a result.
A similar problem can happen if you accidentally transpose some digits in your Social Security number, which is tied specifically to you. If you get it wrong, someone else may get credit for all that money you earned and paid taxes on for the year.
It's possible to check if anything like this has ever happened to you. The SSA keeps track of all the money you've paid Social Security taxes on in your earnings record, which you can view by creating a my Social Security account. Look yours over and compare it against your personal tax records to see if anything looks amiss.
If you spot a mistake, don't panic. You can fix it as long as you have the documents to prove your real income for the year. Just fill out a Request for Correction of Earnings Record form and submit it, along with copies of your own records, to the SSA. The SSA will review your information and update your record if you have sound proof of your claim.
2. Retiring before you've worked 35 years
Your Social Security benefit is based on your average monthly earnings during your 35 highest-earning years, adjusted for inflation. Working for fewer than 35 years won't render you ineligible for Social Security (though working for fewer than 10 years will), but it can reduce your benefit.
If you've earned an average of $50,000 per year for 35 years, adjusted for inflation, you'd have an average Social Security benefit of $1,911 per month based on the current benefit formula. But if you only worked for 34 years, you'd have a zero-income year factored into your calculation. Assuming your average monthly earnings over those 34 years remained $50,000, your benefit would be just $1,872 per month. That's only a $39 difference, but over a 25-year retirement, it adds up to $11,700 less.
Working at least 35 years is key to maximizing your benefits, and putting in extra years in the workforce could help you get even larger checks. Most people earn more money later on in their careers, and that helps raise their average monthly income for the Social Security benefit calculation.
3. Claiming as soon as you turn 62
Signing up for Social Security benefits at 62 isn't always a mistake. If you need the money to survive, it's worth it. And if you don't think you'll live very long, signing up early also makes sense. But if you think you'll make it to your 80s or beyond and you can afford to wait, you'll get more money overall by delaying.
When the SSA calculates your benefit, it first figures out how much you will receive if you claim at your full retirement age (FRA). This is anywhere from 66 to 67 for today's workers. If you don't claim at your FRA, the SSA then does an additional calculation to determine how to adjust your scheduled benefit. If you start claiming early, you get less per check and if you delay claiming past your FRA up to 70, you get more money per check.
For those who live long lives, delaying benefits translates to a larger lifetime Social Security benefit, sometimes as much as six figures more. Of course, you can't know that you'll live long enough to make the delay worthwhile, so you just have to make an educated guess.
If you do apply early and later decide it was a mistake, you may be able to change your mind. As long as it's been less than a year since you've signed up, you can stop benefits so you can enjoy larger checks later. But you must return all the benefits you've received so far as well as any benefits family members claiming on your work record have received, which means you need their consent. It's a bit of an arduous process, so it's better just to avoid signing up too early if you don't need the money right away.
The government doesn't have the time or the interest to chase after people and let them know how their decisions could be costing them Social Security benefits, so you have to be your own advocate. Educate yourself on how Social Security benefits work and the factors that affect your checks so you can hold on to as much of what you've earned as possible.