You'll probably rely pretty heavily on Social Security to pay your bills during retirement. Even if you kick off your senior years with a decent chunk of money in savings, you could end up depleting your IRA or 401(k) in your lifetime.
The great thing about Social Security is that it's designed to pay you a monthly benefit for the rest of your life. And if you play your cards right, you can help ensure that your monthly benefit is as generous as possible. These seemingly innocent mistakes, however, could result in a lower benefit -- and more financial struggles throughout your senior years.
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1. Ending your career a few years early
The Social Security benefit you're entitled to in retirement will hinge on your earnings during your 35 highest-paid years in the workforce. But for each year you don't have an income on record, you'll have a $0 factored into your benefits equation.
Now, say you took some time off during your career to raise children, travel, or focus on volunteering. It could be the case that you're in your early 60s but only have 33 or 34 years of earnings under your belt. Unfortunately, that could prove problematic from a Social Security standpoint, in which case it could pay to work another year or two to lock in a higher benefit.
2. Signing up for benefits in conjunction with Medicare
Medicare eligibility begins when you turn 65, and you can actually sign up a few months ahead of your 65th birthday. Once you sign up for Medicare Part B, which covers outpatient services and diagnostics, you'll be on the hook for a monthly premium, the cost of which changes from year to year.
If you're not yet collecting Social Security at the time of your Medicare enrollment, you'll get the option to pay your Part B premiums directly. But if you're on Social Security, you can have those premiums deducted from your monthly benefits to avoid that hassle.
You may be tempted to sign up for Social Security at the same time as Medicare for the convenience factor alone. But in doing so, you'll reduce your monthly benefit. That's because you don't get your full benefit based on your wage history until you reach full retirement age, or FRA.
FRA doesn't kick in until age 66 at the earliest. And if you were born in 1960 or later, FRA doesn't arrive until age 67.
3. Not reporting earnings from a side job
You may be motivated to take on a side gig on top of your main job to boost your income. But if you don't report the money you make from that second gig, it won't count toward a higher Social Security benefit down the line.
The monthly benefit you're entitled to in retirement isn't just based on salaried wages. If you work as a freelance consultant, that income, too, can count toward calculating your benefit. But if you don't report it, your benefit won't get that boost.
Incidentally, it's important to report all of your income to comply with IRS rules. You could face penalties for not reporting and paying taxes on income you earn on the side.
Don't slash your benefits needlessly
No matter what your savings balance looks like going into retirement, there's no sense in reducing your Social Security income due to carelessness. Now that these blunders are on your radar, you can take steps to avoid them -- and potentially secure a higher benefit for life.
