Social Security could end up playing an important role in your retirement finances. This holds true even if you manage to kick off your senior years with a decent sum of money socked away in a savings plan.
That's why it's important to know the program's rules inside and out. If you don't, you could end up depriving yourself of essential income. Here are just a few ways you could lose out on Social Security benefits you'd otherwise be eligible for.
1. Waiting too long to file
You're entitled to your full monthly Social Security benefit, based on your earnings history, once you reach full retirement age, or FRA. FRA is either 66, 67, or 66 and a certain number of months, depending on when you were born.
Now for each year you hold off on claiming Social Security beyond FRA, your benefits get an 8% boost -- and a permanent one at that. But once you turn 70, your benefits can no longer grow. And so if you end up delaying your filing beyond age 70, you could end up missing out on income you should've collected.
2. Delaying your spousal benefit claim
To be eligible for Social Security benefits, you need to accrue enough work credits in your lifetime (40, to be specific). But if you're married to someone who's eligible for Social Security, you may be entitled to spousal benefits even if you never worked yourself.
The spousal benefit you receive will be worth 50% of the amount your spouse is eligible for, provided you wait until your FRA to sign up for it. But one mistake you shouldn't make is delaying your Social Security filing if you're collecting a spousal benefit only.
While holding off on claiming Social Security will result in a boost for your own benefit, spousal benefits cannot grow. As such, once you reach FRA, there's no sense in delaying your claim.
3. Not working 35 years
The monthly Social Security benefit you're entitled to in retirement will hinge on how much money you earned during your 35 most profitable years in the workforce. But if you don't work 35 years, you'll have a $0 factored into your benefit calculation for each year you're missing an income. And too many $0s could result in a much lower benefit for life.
If you're thinking of retiring early, it pays to look back at your earnings history to make sure you have 35 years of income under your belt. If you're a few years short, you may want to consider plugging away at a job a little longer to set yourself up with a higher Social Security benefit for life. And if you don't want to keep working on a full-time basis, consider part-time work, which could replace a $0 earnings year with some income.
Don't make a big mistake
No matter how much Social Security ends up paying you, there's a good chance those benefits will serve as an important income source. Make sure you fully understand how the program works and when to claim benefits so you don't end up forgoing income that could really come in handy during retirement.