Americans who have worked for at least 10 years should be able to count on some Social Security benefits to help them through retirement, but how much you'll get depends as much on your choices as it does upon the government's rules. It's your responsibility to make smart financial decisions if you hope to get the most out of the program.
You also have to avoid costly mistakes. Below, I highlight three of the most common errors today's workers and Social Security recipients are making that could shrink their benefit checks.
1. Not checking your earnings record
For those of you who aren't familiar with how your Social Security benefits are calculated, the government tracks the income on which you've paid Social Security taxes in what's known as your earnings record. Then, it totals your income from your 35 highest-earning years (adjusted for inflation), divides it by 420 (the number of months in 35 years), and inputs that amount into the Social Security benefit formula to determine the size of your checks.
The Social Security Administration (SSA) gets your income information from the IRS, so your earnings record is normally pretty accurate. But mistakes can happen. If you change your name and fail to report it to the SSA, or you or your employer accidentally transpose some digits in your Social Security Number on your employment paperwork, the SSA may not record your earnings correctly. This could result in your numbers showing less income than you actually earned during the year or no income at all, and that could lead to a lower Social Security benefit than you're entitled to.
You can prevent this by verifying the accuracy of your earnings record every year. Create a my Social Security account if you don't already have one to view your earnings record and compare the income listed there to your tax returns to make sure all of the information is accurate. If you notice a mistake, fill out a Request for Correction of Earnings Record form and submit this along with copies of documents that prove your real income for that year.
2. Retiring before you've worked 35 years
You only need to work 10 years to claim Social Security benefits, but you should aim to work at least 35 years if you want the most out of the program. If you've worked less than 35 years, you'll have zero-income years included in your benefit calculation, which will result in smaller checks.
Say you earned $50,000, adjusted for inflation, every year for 35 years. If you started benefits at your full retirement age, you'd get $1,890 per month. But now let's say you earned the same amount annually, but you only worked for 34 years. Your income would be $0 for your 35th year, and that would bring your monthly benefit down to $1,852 per month. A loss of $38 may not seem like much, but that's $38 every month. Over 30 years, that adds up to $13,680 in lost benefits.
When you retire is ultimately your call, but you should aim to work at least 35 years if you can to prevent zero-income years from weighing down your benefit calculation. Working longer is even better because most people earn more later on in their careers, and when you work more than 35 years, your lower-earning years drop off and your higher-earning years replace them.
3. Starting benefits without considering your age and life expectancy
The other big factor influencing the size of your benefit checks is the age at which you begin taking benefits. You must wait until your full retirement age (FRA) -- 66, 67, or somewhere in between, depending on your birth year -- if you want the full benefit you're entitled to based on your work history.
You can start benefits as early as 62, but then you'll only get 70% of your scheduled benefit per check if your FRA is 67 or 75% if your FRA is 66. You also have the choice to delay benefits past your FRA. You'll get your maximum benefit if you wait until 70 -- 128% of your scheduled benefit per check if your FRA is 67 or 132% if your FRA is 66. If you were entitled to the $1,890 benefit from our example above at your FRA of 67, that would mean you'd get just $1,323 per month if you started at 62 or $2,419 per month if you start at 70.
Larger checks may seem more desirable, but waiting longer isn't always the best choice. You have to weigh your life expectancy, as well. If you don't expect to live long, you're usually better off starting sooner, while someone who thinks they'll be around until their 90s or beyond has more to gain by waiting. It's always a bit of a guessing game because you never really know how long you'll live, but it's worth trying to estimate which starting age will give you the most benefits.
Your my Social Security account should give you a rough estimate of how much you'll get if you claim benefits at 62, your FRA, and 70 based on your current work record. Multiply these amounts by the number of months you expect to claim benefits to figure out which age offers you the most money overall. You can also start somewhere in between these ages if you choose.
Social Security is a central part of most people's retirement plans, so you want to do what you can to maximize your benefits. Avoiding the three above mistakes will ensure you get as much money as possible from the program.