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3 Costly Social Security Mistakes People Make Long Before Claiming Benefits

By Kailey Hagen - Jan 20, 2021 at 5:02AM

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If you want the largest benefit possible, you can't afford to do any of these things.

You can't start claiming Social Security until you're at least 62, but if you wait until then to begin thinking about your benefits, you may have already cost yourself a lot of money. Your income today helps determine how much you get from the program later, so the right time to begin thinking about your Social Security benefits is now. Avoid these three common, yet expensive mistakes if you want to get the most money possible in retirement.

1. Not maximizing your income during your working years

The Social Security Administration looks at your average monthly income during your 35 highest-earning years, adjusted for inflation, when calculating your benefit. So anything you can do today to increase your income will also raise your Social Security checks in the future. Use that as an added incentive to pursue promotions, work overtime, or seek out higher-paying job opportunities elsewhere if you'd like to maximize your lifetime Social Security benefit.

Frustrated mature man sitting in front of laptop

Image source: Getty Images.

Starting a side hustle is another option, but you must report all the income you earn this way to the IRS. That's the law, but it's also necessary if you want this income to boost your Social Security checks because only money you've paid Social Security taxes on counts toward your benefit calculation.

However, if you make over $142,800 in 2021, earning more won't help your Social Security benefits because income over this amount isn't subject to Social Security taxes. This threshold changes every year, so pay attention to this if you're a high earner.

Whatever you do, aim to work for at least 35 years. You can still qualify for benefits even if you haven't worked that long, but you'll have zero-income years factored into your calculation that will reduce your benefit. Working longer than 35 years is to your advantage if you're able to do it because then your higher-earning years -- typically those later in your career -- replace your lower-earning years, resulting in a higher average monthly income.

2. Not verifying the accuracy of your earnings record

The Social Security Administration keeps track of how much income you've paid Social Security taxes on in your earnings record, which you can view by creating a my Social Security account. This information comes straight from the IRS, so it's usually accurate, but errors with your tax return for a certain year can lead to the Social Security Administration getting the wrong information. It's especially devastating if you end up with a zero-income year by mistake, because this could reduce your Social Security benefit. 

You can avoid these errors by always ensuring your tax paperwork is accurate. Notify your employer of any name changes and make sure to record your Social Security number accurately on employment documents so the government connects the money you've earned with you. You should also review your earnings record every year to make sure it's accurate. Hold on to your tax paperwork for that year until you've done so.

If you do notice a mistake, you'll need that paperwork to prove what you actually earned. Fill out a Request for Correction of Earnings Record form and submit this to the Social Security Administration along with your documentation. The Social Security Administration will look it over and if it determines you're correct, it will update your earnings record appropriately. Follow up to make sure this is done.

3. Not coordinating with your spouse to get the most household benefits

Single adults only have to worry about their own benefits, but things are more complicated for married couples. As long as one spouse has worked long enough to qualify for Social Security -- that is, they've earned at least 40 credits, where in 2021 a credit is defined as $1,470 in earnings and you can earn a maximum of four credits per year -- their spouse is also eligible for benefits. 

When both spouses have worked long enough to be eligible for Social Security, each has the choice of claiming their own benefits, or one could claim a spousal benefit on the work record of the other. You don't have to tell the Social Security Administration which approach you'd like to take because it will automatically do whatever would give you the most money. But it still helps to understand how your decisions regarding your benefits could affect your spouse so you can decide together when each of you should sign up.

The age you begin benefits is the single-biggest factor after the income you earned during your working years that determines how much you get from Social Security. You must wait until your full retirement age (FRA) -- 66 or 67, depending on your birth year -- to get your standard benefit. You have the option of starting as early as 62, but if you claim before your FRA, the Social Security Administration gives you smaller checks every month. If your spouse planned to claim a spousal benefit on your work record, starting benefits before your FRA also permanently reduces the benefit your spouse is eligible for.

You can also delay benefits past your FRA and your checks will gradually grow larger until you reach the maximum benefit at 70. One popular strategy for couples where one spouse earned significantly more than the other is for the lower-earning spouse to claim early, if necessary, to provide a steady source of income while the higher-earning spouse delays benefits until they are eligible for larger checks. Then, when they sign up for benefits, the Social Security Administration will automatically switch the lower-earning spouse to a spousal benefit if this would give them more money.

Social Security is only one piece of the puzzle for most retirement savers, but it's often an important one, so start trying to maximize your benefits right now. You should also review your plans for Social Security every few years and before you sign up to decide if you need to make any changes.

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