Chances are, you'll wind up relying on Social Security to a pretty substantial degree in retirement. Losing out on money in your benefits is therefore the last thing you want to do. But if you fall victim to the following mistakes, you could wind up regretting them for the rest of your life.
1. Not working long enough to maximize your benefits
The amount of money you get to collect from Social Security each month in retirement isn't just an arbitrary number. Rather, your wages from your highest-paid 35 years in the workforce are averaged and indexed for inflation to arrive at your monthly benefit. But if you don't work a full 35 years, you'll have a $0 factored in for each year you're missing income. The more $0s you have, the more your benefits get driven down.
If you're nearing the end of your career but have an opportunity to put in a little more time in the workforce, it pays to do so if you don't have a full 35 years of earnings under your belt. Even if you did work a full 35 years, it could still pay to work a bit longer if your salary has increased substantially over time. That way, you get to replace a few lower-earning years with higher earnings to boost your monthly benefit.
2. Not checking your annual earnings statements for errors
Each year, the Social Security Administration (SSA) issues workers an earnings statement that summarizes your taxable wages for the year. It also provides an estimate of what your monthly benefit will look like in retirement.
Here's the problem, though: Those earnings statements can contain errors, and if yours has one that works against you, it could cause your benefits to go down. Imagine the SSA lists your 2019 earnings as $44,000 when you really made $64,000. If your employer provided inaccurate wage information somewhere along the line, it could happen. That's why you must make a point to review those statements every year. If you spot an error that hurts your benefits and work to get it fixed, you'll avoid losing out on income needlessly.
Keep in mind that you won't receive your earnings statement in the mail unless you're 60 or older -- though some lawmakers are pushing for people of all ages to get their copies by mail. Until then, though, you can create an account on the SSA's website and access your statements there.
3. Filing for benefits too early
You're entitled to receive your full monthly benefit based on your earnings history once you reach full retirement age (FRA). That age is either 66, 67, or somewhere in between, depending on your year of birth. The SSA, however, allows you to file for benefits as early as age 62. There's just one catch -- for each month you file ahead of FRA, your benefits get reduced on a permanent basis. File at 62 with an FRA of 67, and you're looking at a lifelong 30% reduction on the benefit you collect each month.
In some cases, filing for benefits before FRA makes sense, such as if you've lost your job and really have no other means of paying the bills. But unless you have a truly compelling reason to claim benefits early, you may be better off waiting until FRA to avoid that permanent hit.
One more thing: You can, technically speaking, file for benefits before FRA and avoid locking in that lower monthly payment for life. To do so, however, you'd need to withdraw your benefits application within a year of submitting it and also repay the SSA every dollar in benefits it paid you. The latter is far from easy, so while undoing your benefits is an option, much of the time, it's off the table -- so the monthly benefit you initially lock in is the same benefit you'll wind up with for life.
The less savings you have going into retirement, the more crucial Social Security becomes. But even if you have savings, it still pays to make the most of those benefits, so do your best to avoid mistakes you'll likely regret in a very big way.