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Don't Make These 5 Social Security Mistakes

By Selena Maranjian – Nov 27, 2016 at 6:06AM

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The more you know about Social Security, the more money you'll likely collect from the system.

Failing to familiarize yourself with Social Security can be a very costly mistake. After all, according to the Social Security Administration, the majority of elderly beneficiaries get 50% or more of their income from Social Security, while millions get 90% or more from the program. In order to make the most of Social Security and maximize your financial security in retirement, you'll want to avoid the following mistakes.

Don't end up collecting less than you could have. Image source: Getty Images.

1. Not planning for retirement, including Social Security income

Only 49% of workers have taken the time to estimate how much income they'll need per month in retirement, and only 40% have estimated how much they'll receive from Social Security, according to the Employee Benefit Research Institute. It's important to have at least a rough idea of how much you can expect to receive from Social Security in retirement. Otherwise you don't know how much you need to save up in order to provide the rest of your retirement income. Fortunately, this is an easy problem to solve. The Social Security Administration has a retirement benefit estimator that will give you a rough idea of how much you can expect to receive each month. For context, the average Social Security retirement benefit was recently $1,352 per month, or about $16,224 per year, while the maximum benefit for those retiring at their full retirement age was $2,639 per month -- or about $32,000 for the whole year.

Image source: Getty Images.

2. Filing for benefits at the wrong time

Many people just assume that they will start collecting at age 65 or so. That's not necessarily the case. The normal (or "full") retirement age for Social Security used to be 65, but it has gradually increased. For those born in 1937 or earlier, it's 65; for those born in 1960 or later, it's 67; and for those born between 1937 and 1960, it's somewhere in between. Despite that, however, you can start receiving benefits as early as age 62 and as late as age 70.

Determining when it's best for you to start receiving benefits is a big deal. Start as early as age 62, and your checks will be up to 30% smaller, but you'll receive more of them than if you started later. Delay your benefits, and you'll receive fewer of them, but they'll be larger. For every year beyond your full retirement age that you delay, you'll increase your benefits by about 8% -- up until age 70, when your benefits max out. So delaying from age 67 to 70 can leave you with checks about 24% fatter.

One important caveat: The difference isn't as big as it seems, because the system is designed in such a way that if you live to your average life expectancy, then you'll receive the same lifetime benefits no matter when you start collecting. So if you need the money, or if you don't expect to have a longer-than-average retirement, then consider collecting early. If you can afford to wait and you expect to live a long life, then delaying your benefits could pay off big-time.

3. Assuming you won't get benefits

If you haven't had a long career of receiving paychecks and paying Social Security taxes, then you may think you have no chance of receiving retirement benefits. You'd be wrong, though. If you're married, divorced, or widowed, you may be able to claim benefits based on your current, ex-, or late spouse's earnings record -- generally between 50% to 100% of the spouse's benefit. (Divorcees must have been married to their ex-spouse for at least 10 years and must not have remarried.)

4. Not maximizing your base benefits

The number of years you work before collecting Social Security can make a big difference in how much you receive from it. The formula used to compute your benefits is based on your earnings in the 35 years in which you earned the most money (adjusted for inflation). If you only earned income in 27 years, then the formula will be incorporating eight zeros, which will shrink your benefits considerably. If you're planning to retire after 33 years of work, then it might be worthwhile to work at least two more years. Even if you have worked 35 years, then you might consider working for another year or two if you're currently earning much more than you have in the past: Each high-earning year will kick a low-earning year out of the calculation, boosting your benefits.

Image source: Getty Images.

5. Not coordinating with your spouse

Finally, a classic Social Security mistake is not coordinating with your spouse when you each start collecting. Married couples have lots of options when it comes to collecting Social Security benefits. For example, they might start collecting the benefits of the spouse with the lower lifetime earnings record on time or early, while delaying the benefits of the higher-earning spouse. That way, the couple does get some income earlier, and when the higher earner hits 70, they can collect extra-large checks. Also, should that higher-earning spouse die first, the spouse with the smaller earnings history can collect those bigger benefit checks.

The more you know about Social Security, and the more you strategize about it, the more money you'll likely be able to collect from the system.

Longtime Fool specialist Selena Maranjian, whom you can follow on Twitter, owns no shares of any company mentioned in this article.  We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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