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3 Social Security Mistakes That Could Cost You a Fortune

By Maurie Backman - Sep 8, 2020 at 8:29AM

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Falling victim to these blunders could leave you with a lot less retirement income.

Many seniors rely heavily on Social Security to make ends meet during retirement. If you plan to do the same, then you'd be wise to avoid the following mistakes that could leave with you a lot less money to enjoy.

1. Claiming benefits too early

Your Social Security benefits are calculated based on your personal earnings history -- specifically, your average monthly wage, adjusted for inflation, during your 35 most profitable years in the workforce. You're then entitled to that benefit once you reach full retirement age, or FRA, which is either 66, 67, or somewhere in between, depending on the year you were born.

You're allowed to claim Social Security as early as age 62, but for each month you file before FRA, your benefits get reduced on a permanent basis. If there's a reason you must file early -- say, you're out of work or have been hit with unplanned expenses you can't otherwise pay for -- then you may have to take that hit. But if you can hold off on filing until FRA or even beyond, you'll avoid a reduction to your monthly benefit that could hurt you in the long run.

Older man and woman holding their heads while sitting on a couch; in front of them is a table with a laptop, folders, papers, eyeglasses, and calculator

Image source: Getty Images.

2. Claiming benefits past age 70

Claiming Social Security at your precise FRA will give you your full monthly benefit, but if you hold off past that point, you'll get an even higher benefit each month. Every year you delay your filing beyond FRA gives you an 8% boost to your benefits, and that increase remains in effect for life. But once you turn 70, your monthly benefit can no longer grow, so it doesn't pay to delay your filing past that point, and if you do, you'll risk losing out on money you could've otherwise collected.

One thing you should know is that the Social Security Administration will pay you up to six months of retroactive benefits. If you don't manage to sign up for Social Security by age 70 but you do so by 70 1/2, you won't be out any money. But either way, there's no financial incentive to delay your filing past the age of 70, so mark that date on your calendar so you don't forget it.

3. Delaying your spousal benefits

Delaying your Social Security filing past FRA could give you a much higher monthly benefit to look forward to -- but that's if you're claiming benefits based on your own earnings record. If you never worked and are therefore claiming a spousal benefit, you can collect it in full once you reach FRA, but there's actually no sense in delaying your filing past that point, because unlike regular benefits, spousal benefits don't get an 8% boost when you hold off on claiming them. Or, to put it another way, just as there's no sense in delaying a regular retirement benefit past age 70, there's no sense in delaying a spousal benefit past FRA.

Chances are, Social Security will play an important role in your retirement. Maybe you'll use those benefits to cover your basic bills, or maybe those benefits will allow you to travel, pursue hobbies, and meet your personal goals. Either way, it's important to get as much money from Social Security as you possibly can, and avoiding the above mistakes will help you do just that.

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