Social Security serves as a critical income source for millions of retired workers. But if you're not careful, you could end up losing out on thousands of dollars in benefits. Here are five major Social Security mistakes you don't want to fall victim to.

1. Not knowing your full retirement age

Your Social Security benefit amount is calculated based on how much you earned during your career, but you have the power to raise or lower that number depending on when you first file for benefits. Once you reach your full retirement age (FRA), you'll be able to collect what we'll call your base benefit amount in full. File before FRA, however, and you'll slash your monthly payments -- for life.

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Here's the age at which you're eligible for your full benefit payment, based on when you were born:

Year of Birth

Full Retirement Age




66 and 2 months


66 and 4 months


66 and 6 months


66 and 8 months


66 and 10 months




Knowing your FRA can help you avoid an unnecessary reduction in benefits, so memorize that number and keep it mind when you go to file for Social Security.

2. Claiming benefits early for no particular reason

Even though the Social Security Administration designates a full retirement age for eligible recipients, you don't have to wait until FRA to file for benefits. In fact, you're allowed to start collecting Social Security as early as age 62. But unless you have an urgent reason to do so, you may be better off waiting. That's because for each year you take benefits early, you'll lose 6.67% of your base payment amount for the first three years, and 5% for each year thereafter. This means that someone whose FRA is 67 will lose 30% of his or her benefits by taking Social Security as early as possible.

Now if you really need the money before reaching FRA -- say, you lose your job or fall ill -- then it pays to file for benefits early, as opposed to racking up costly credit card debt just to cover your expenses. But unless there's a pressing reason at play, waiting will help you avoid a lifetime reduction in benefits.

3. Delaying benefits when your health is poor

Just as you'll face a reduction in benefits by taking them early, so too can you boost your Social Security payments by filing after FRA. In fact, for each year you hold off past FRA, you'll get an 8% boost in your payments, up until this incentive runs out at age 70. Now if your health is great and you expect to live a long life, holding off on benefits can really pay off. But if your health is poor, and you have a family history of dying young, delaying Social Security is generally a bad idea.

Though Social Security is actually designed to pay you roughly the same lifetime amount regardless of when you first file, if you die earlier than expected, that formula goes awry. So let's assume your FRA is 66 and you opt to hold off on benefits to snag that 32% boost. Let's also assume your full benefit amount is $1,500 a month. If you file on time at 66 and live until 75, you'll end up with $162,000 in lifetime benefits. But if you wait until age 70 to file, even though you'll be boosting each individual payment you receive by $480, you'll wind up with just $118,800 in total lifetime payments. And that's a pretty sizable difference.

4. Forgetting about taxes

Many seniors assume that once they begin receiving Social Security, they can collect those payments free and clear of taxes. But while lower earners can often avoid having their benefits taxed, those with outside income will often lose a chunk of their payments to the IRS.

To figure out whether you'll pay taxes on your benefits, you'll need to calculate what's known as your provisional income, which is half of your total yearly benefit payout plus whatever non-Social Security income you collect, including pension or retirement plan distributions, investment income, or money earned from a job.

If your total falls between $25,000 and $34,000 as a single tax filer, or between $32,000 and $44,000 as a joint filer, you could be taxed on up to 50% of your Social Security benefits. And if your total exceeds $34,000 as a single filer or $44,000 as a joint filer, you could be taxed on up to 85% of your benefits.

Furthermore, there are 13 states that tax Social Security payments to varying degrees, so if yours is on the list, you might lose a portion of your benefits that way. Make sure you're prepared for whatever taxes you may be liable for so your retirement budget isn't too thrown off.

5. Counting on Social Security to take the place of independent savings

According to the National Academy of Social Insurance, Social Security serves as the sole source of income for roughly 25% of seniors 65 and older. And that's a major problem, since Social Security was never designed to sustain retirees without additional income sources. In fact, those benefits will only replace about 40% of the average worker's pre-retirement income. Most folks, however, need a good 80% to 85% of their former earnings to pay the bills in retirement. And if your health is poor, or you're still on the hook for a mortgage payment, you may need even more.

Relying on Social Security in the absence of other income sources could end up putting your long-term financial security at risk in retirement, so if you're behind on savings, consider ramping up your IRA or 401(k) contributions, or even extending your career a few years to catch up. Otherwise, you might really struggle to pay the bills once you leave the workforce for good.

Though navigating the world of Social Security can be a cumbersome process, it pays to get educated on how this key program works. The more you read up on Social Security, the better positioned you'll be to make the most of your benefits.