3 Costly Social Security Mistakes That Retirees (and Their Spouses) Can Easily Avoid in 2023

The Social Security program paid retirement benefits to more than 51 million Americans in January, including 48 million retired workers and 2 million spouses, and several million more will start receiving benefits during the year ahead. In some cases, Social Security checks represent the primary source of income for those individuals, but the vast majority of retired workers depend on benefits to some degree.

Unfortunately, many people misunderstand certain aspects of the Social Security program, and knowledge gaps can lead to costly errors. Here are three Social Security mistakes retired workers (and their spouses) can easily avoid in 2023.

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1. Claiming Social Security retirement benefits too early

Eligibility for Social Security retirement benefits begins at age 62, but workers are not entitled to their full benefit, also known as the primary insurance amount (PIA), until they reach full retirement age (FRA). When the Social Security Act became law in 1935, FRA was defined as 65 years old, but the amendments of 1983 made things a bit more complicated.

Today, there is no one-size-fits-all definition. Instead, FRA depends on birth year, as detailed in the chart below.

Source: Social Security Administration.

Only 13% of adults can correctly identify their FRA based on birth year, according to a survey from the Nationwide Retirement Institute. That is a problem. Workers who start Social Security before FRA are penalized with a permanent reduction in benefits. The extent of the penalty depends on exactly how early benefits start, but the reduction can be as big as 30%. This calculator from the Social Security Administration can provide a specific figure based on individual circumstances.

2. Claiming Social Security retirement benefits too late

In 2021, more than half of newly awarded workers (i.e., those receiving benefits for the first time) were penalized for starting Social Security before FRA. But some workers made the opposite mistake. They shortchanged themselves by starting benefits too late.

To clarify, workers who delay Social Security beyond FRA are permanently rewarded with an increased benefit. For instance, anyone born after 1942 gets 8% tacked on to their PIA for each year they wait. That means a person who claims Social Security three years after reaching FRA would receive a retirement benefit equal to 124% of their PIA.

However, the delayed retirement credit stops at age 70, so it never makes sense to begin retirement benefits any later. Anyone who claims Social Security after age 70 has left money on the table.

3. Misunderstanding Social Security spousal benefits

The nonworking spouse of a retired worker can receive Social Security based on the worker's earnings. The spousal benefit amount can be as much as 50% of the retired worker's PIA, but some of the rules are slightly different, and anyone who fails to understand the nuances may shortchange themselves.

First, eligibility for spousal benefits begins at age 62, and spouses who claim Social Security prior to their own FRA receive a permanently reduced benefit. But those rules do not apply if the spouse has a qualifying child, meaning a child who is under age 16 or who receives Social Security benefits.

Second, there is no delayed retirement credit for spousal benefits. That means nonworking spouses shouldn't delay taking Social Security beyond their FRA if possible. Doing so is simply leaving money on the table.