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3 of the Costliest Social Security Mistakes You Could Make

By Christy Bieber – Jun 23, 2020 at 7:31AM

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Are you in danger of making them?

Social Security benefits are one of the most important sources of income for millions of retirees, but far too many end up costing themselves money because they claim benefits without understanding the impact of their actions. 

If you're considering claiming your Social Security benefits during this coronavirus-related recession, you need to make sure you aren't making these three costly errors. 

Social Security card with money sitting on it.

Image source: Getty Images.

1. Not working long enough to max out your benefits

Your earnings history over your career is the single most important factor that determines the amount of Social Security benefits you receive. In particular, the amount you earned in the 35 years when your wages were highest (after adjusting for inflation) is the key factor in the benefits formula.

Social Security always uses a 35-year period when calculating your benefit. And that's a problem if your career history is shorter. Without wages for over 35 years, you'll have some years when you earned $0 factored into your average earnings calculation, and this can have a big impact on the size of your monthly checks. 

And while working for too few years could lower your benefit, working for more than 35 years could increase it. Staying on the job longer won't benefit everyone, but if your earnings are higher now than earlier in your career (after adjusting for inflation), you can bump up the average wage that determines your benefit by putting in an extra few years. For each extra year you work, you'll push out one year of lower earnings and replace it with a higher one, resulting in a higher average wage overall. 

2. Not thinking about your break-even point when deciding what age to claim benefits

You'll see lots of advice on the internet about the importance of delaying your claim for Social Security benefits as long as possible. And this advice makes sense for many people, because waiting to file for benefits enables you to avoid early filing penalties that reduce your checks if they start before full retirement age (FRA). It also enables you to raise your benefit amount if you can earn delayed retirement credits by claiming between FRA and 70. 

But general rules about the positives of late filing may not apply to you. To find out if they do, consider your break-even point. That's the point when the extra money you've earned each month by delaying benefits offsets the income you lost during the time you could've had money coming in if you hadn't waited. It can take more than a decade to hit your break-even point. If you have reason to suspect you won't reach it, such as a history of serious health issues, early claiming may be your best bet. 

3. Failing to coordinate with your spouse

Each person in a marriage can't afford to consider only that person's own situation when assessing when to start benefits. There are a number of different strategies that could maximize the total benefits your household receives.

One of them is to have the lower earner claim benefits first, so the higher earner can delay as long as possible, boosting both the higher earner's own benefit as well as the income the surviving spouse receives. If you're married and don't factor in how your claiming choice could affect survivors benefits, you're doing your spouse a disservice, especially as widowhood often causes a big decline in quality of living

There are other considerations, too. If your spouse plans to claim spousal benefits, you have to claim yours first. You may decide it makes sense to do so ASAP to unlock these benefits if your spouse can't qualify for any on his or her own work record.

You'll need to see what benefits both you and your spouse are eligible for and decide what makes sense for both of you, perhaps even talking with a financial adviser if you can't figure it out on your own.  

Don't short-change yourself on Social Security income

Making sure you get the most money possible from Social Security can help you enjoy retirement more by reducing your financial worries. Remember to think about both monthly and lifetime income and make the smartest choices for your situation so you can avoid errors that could cost you. In a recession and with a volatile stock market, these considerations are more important now than ever. 

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