Social Security will probably be an important income source for you during retirement, and so it's important to get as much money as you can from it. But these oversights on your part could easily leave you $40,000 poorer as a senior than you need to be.
1. Filing too early
You're entitled to your full monthly benefit, based on your earnings history, once you reach full retirement age, or FRA. FRA hinges on your year of birth, and if you were born in 1955, it's 66 and two months. From there, it increases by two months per year of birth until it maxes out at age 67 for anyone born in 1960 or later. Meanwhile, you're allowed to sign up for benefits as early as age 62, but doing so could cause your monthly income to take a major hit -- a hit you'll likely regret down the line.
These days, the average senior on Social Security collects $1,543 a month. If you were to file at age 62 with an FRA of 67, you'd shrink a benefit that size down to $1,080. That's a hit of $463 a month. To be fair, some of that lost income will be offset by the fact that you'll collect Social Security for five extra years. But if you live beyond your late 70s, you'll still end up having lost income by virtue of filing early. In fact, if you live until age 86, you'll end up down just over $40,000 in lifetime benefits.
2. Failing to delay your filing
Just as you're allowed to claim benefits before FRA, so too can you delay your filing past FRA. For each year you do, your benefits will increase by 8%, which means that if you're entitled to $1,543 a month at age 67, waiting until age 70 will give you $1,913 a month instead. Of course, in filing late, you will miss out on a few years of benefits -- the benefits you could've gotten starting at age 67. But if you live until age 92 and decide to file for Social Security on time, you'll end up losing out on $42,000 in lifetime benefits.
3. Delaying your filing when your health is poor
Holding off on Social Security makes a lot of sense when your health is great and you think you'll live a long life. But when your health is poor, filing late can backfire on you. In the above scenario, we saw that claiming benefits at 70 instead of 67 increased a $1,543 benefit by $370 a month. But if you delay Social Security until age 70 and live until age 73, you'll actually end up collecting about $42,000 less in your lifetime.
Be sure to file at the right time
Your goal should be to make the most of Social Security. But don't focus just on the amount you stand to collect each month. Rather, keep your eyes on the big picture -- lifetime income. The above oversights could leave you with a lower total benefit, so make sure to file carefully rather than rush that decision.