3 Stupid Social Security Moves

The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have little. -- Franklin D. Roosevelt 

President Roosevelt is the one who signed Social Security into law, in 1935. The program has since become a critical source of retirement income for the majority of retired Americans. If you're not already receiving Social Security benefits, you probably will later. Here are three things to avoid doing, lest you end up receiving a lot less income and having a less comfortable retirement than you could have had.

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Assuming Social Security income is sufficient for retirement

Few people are eager to crunch some numbers to see how much money they might need in retirement and how much they can expect to receive from various sources, including their own savings. It's easier to just leave much of such stuff to chance, which is what many people do -- at their own peril. 

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According to the 2016 Retirement Confidence Survey, only 48% 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. It's kind of important to have at least a rough idea of how much you can expect to receive from Social Security in retirement. Without knowing, it will be hard to know how much you need to save up to provide the rest of your needed retirement income. Fortunately, this is an easy problem to solve. You can find out how much money you can expect to receive from Social Security via a visit to its website at www.ssa.gov. To give you a rough idea, the average Social Security retirement benefit was recently $1,364 per month, or about $16,368 per year, while the maximum benefit for those retiring at their full retirement age in 2017 is $2,687 per month -- or about $32,000 for the whole year.

Do these numbers seem sufficient to support you in retirement? If they don't, you probably still have time to amass a bigger retirement war chest. Here's how much you might accumulate, depending on how far from retirement you are:

Calculations by author.

Some or much of your nest egg might be used to buy fixed annuity income, and/or parked in dividend-paying stocks. A $300,000 portfolio with an average dividend yield of 4% will generate $12,000 per year -- $1,000 per month.

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Starting to receive benefits at the wrong time

Meanwhile, many people just assume that they will start collecting at age 65 or so. That's not necessarily the case. The most common age at which people start collecting is 62 -- the earliest age at which you can do so. It's not just impatience, either. Many people don't get to retire when they want to, and retire early because of job losses or health issues or other unexpected developments.

You can start receiving benefits as late as age 70. Determining when, between the ages of 62 and 70, to start collecting benefits is a big deal. Start at age 62 and your checks will be up to 30% smaller -- but you'll receive more of them than if you started later. Delay, and the checks will get bigger. For every year beyond your full retirement age that you delay, you'll increase their value by about 8% -- until age 70. So delaying from age 67 to 70 can leave you with checks about 24% fatter. (That's enough to turn a $2,000 check into a $2,480 one.)

The difference isn't as big as it seems, though, because the system is designed so that total benefits received are about the same for those with average life spans no matter when they start collecting. So if you need the money, consider starting to collect early. If you can afford to wait, though, it might be worth delaying at least a few years, especially if you expect to live a longer-than-average life. Note, too, that, actuarially speaking, once you reach age 60, your odds of living a lot longer are rather good. According to data from the Social Security Administration, nearly 60% of 60-year-old men will live to 80, and about 68% of 60-year-old women will do so. More than 20% of both genders will hit age 90.

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Not maximizing your Social Security benefits

Finally, another bad blunder is not doing what you can to beef up your benefits. Delaying starting to receive them isn't the only strategy.

For starters, know that 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, the formula will be incorporating eight zeros, which will shrink your benefits considerably. If you're planning to retire after 33 years of work, it might be worth it to work at least two more years. Even if you have worked 35 years, if you're currently earning much more than you have in the past (on an inflation-adjusted basis), you might consider working for another year or two, as each high-earning year will kick a low-earning year out of the calculation, boosting your benefits.

Married couples can benefit from spousal strategies, too. For example, they might start collecting the benefits of the spouse with the lower lifetime earnings record on time or early, while delaying starting to collect 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.

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 it. Not paying much attention to Social Security and the benefits it will pay you in retirement can be a very costly mistake.