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3 Signs You're Thinking About Social Security the Wrong Way

By Katie Brockman - Mar 10, 2020 at 7:45AM

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Making any of these mistakes could affect your Social Security benefits for the rest of your life.

Social Security benefits can mean the difference between a difficult retirement and a comfortable one, particularly if your nest egg isn't as strong as you'd hoped it would be.

There are several misconceptions about the program, though, and many soon-to-be retirees are thinking about Social Security the wrong way. However, sometimes even seemingly harmless myths can wreck your entire retirement. To ensure you're maximizing your benefits, make sure you avoid these three common mistakes.

Older woman looking at documents and a laptop

Image source: Getty Images

1. Believing you can survive on your benefits alone in retirement

Nearly one-quarter of married couples and close to half of unmarried beneficiaries rely on Social Security for at least 90% of their income in retirement, according to the Social Security Administration. However, your benefits are only designed to replace approximately 40% of your pre-retirement income.

The average retiree receives $1,503 per month in benefits, which amounts to just over $18,000 per year. So if you're expecting your monthly checks to cover all your expenses in retirement, you may need to make some serious lifestyle adjustments.

While depending on Social Security to some degree isn't a bad thing, make sure you're not over-relying on it in retirement. If you're putting off saving because you expect your benefits to be enough to pay the bills, you could be in for a rude awakening. To avoid that scenario, try your best to stash as much as you can in your retirement fund now so Social Security won't have to do all the heavy lifting.

2. Not considering how the age you claim at will affect your income over the long-term

The amount you receive each month in benefits depends on what age you start claiming. You can begin claiming at age 62 or any age thereafter, but if you file for benefits before your full retirement age (FRA) -- which is either age 66, 67, or somewhere in between, depending on the year you were born -- your benefits will be reduced. On the other hand, if you wait until after your FRA to claim -- up until age 70 -- you'll receive extra cash on top of your full benefit amount each month.

While you do have an option for a do-over if you claim too early and want to withdraw your application, this can only be done within 12 months of when you initially filed for benefits. In addition, you have to pay back all the money you've already received. If you wait too long to change your mind or can't afford to pay back all your benefits, you'll be stuck with your benefit amount for the rest of your life. This makes it extra important to make sure you're claiming at the right age.

When you should claim benefits depends on a couple of factors, including your life expectancy and how much other income you'll have in retirement. The average American can expect to live around 85 years, according to the Social Security Administration. If you have reason to believe you'll live a significantly longer- or shorter-than-average life, you may be better off delaying benefits or claiming early. If you only expect to live into your 70s, for example, claiming as early as possible can give you more time to enjoy your money. But if you live into your 90s or beyond, you could stand to receive more over a lifetime if you delay benefits and earn those bigger checks.

Additionally, if you don't have much saved for retirement, those bigger checks you'd receive by delaying benefits can go a long way. But if you have a strong nest egg and don't necessarily need the extra cash, claiming early can provide some additional spending money when you're still relatively young and healthy.

3. Failing to create a claiming strategy with your spouse

Not only is it important to think about the best age for you to claim benefits, but it's also wise to consider how your decision will affect your spouse.

If you and your spouse are both entitled to Social Security benefits, it's a good idea to coordinate when you both want to begin claiming. For example, you may decide that it's best for the lower-earning spouse to claim early, because even though that will result in smaller checks, it will also give you two some extra cash to enjoy early in retirement. Then the higher-earning spouse can delay benefits to earn fatter checks that will provide a bigger financial cushion later in retirement.

Age and life expectancy can also play a role in your spousal claiming strategy. If you pass away before your spouse, your spouse has the option to start receiving your benefit amount -- as long as it's higher than what he or she was already receiving in benefits. If you're much older or have reason to believe your spouse will outlive you, it may be a good idea to delay benefits to earn those bigger checks. This way, you can ensure your spouse will be receiving as much as possible in benefits even after you're gone.

Social Security benefits will play a major role in most people's retirement, so it's wise to make sure you're doing everything you can to make the most of those monthly checks. The more you plan and prepare, the better off you'll be in retirement.

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