After paying Social Security taxes throughout your career, retirement is the time to reap those benefits on the back end. For many people in the U.S., Social Security retirement benefits account for a good chunk of their retirement income. That's why it's especially important to make sure you're avoiding mistakes that could cost you money.
Here are three Social Security mistakes you may be making without realizing it.
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1. Not knowing your full retirement age
Although you can begin receiving Social Security benefits at age 62, your full retirement age (FRA) is the age you're eligible for your full Social Security benefit. Here's your FRA based on birth year:
| Birth Year | Full Retirement Age |
|---|---|
| 1943 to 1954 | 66 |
| 1955 | 66 and 2 months |
| 1956 | 66 and 4 months |
| 1957 | 66 and 6 months |
| 1958 | 66 and 8 months |
| 1959 | 66 and 10 months |
| 1960 or after | 67 |
Data Source: Social Security Administration.
Knowing your FRA is important because it's the baseline for calculating your benefits if you decide to take them early or late. If you take your benefits early, Social Security will reduce them based on how far away you are from your FRA. If you're within 36 months, benefits are reduced by five-ninths of 1% monthly. Any month over 36 months will reduce it by five-twelfths of 1% monthly.
Delaying your benefits past your FRA will increase them by two-thirds of 1% for each month. Knowing your FRA lets you decide whether taking benefits early or delaying them is right for you based on the financial implications.
2. Earning too much
Just because you take Social Security doesn't mean you have to stop working. You just have to watch how much you make because it could lower your Social Security benefit.
If you begin receiving your Social Security benefits before your FRA and continue working and earning over a certain amount, you'll be subjected to Social Security's retirement earnings test (RET). The RET reduces your benefits before you reach your FRA and then adds the reduced amount to your benefits once you reach your FRA. They're basically withheld during that time.
For example, let's assume your FRA age was 67 and you decided to take benefits at 62 while earning over the allowed limit. If the RET lowered your yearly benefits by $4,000, Social Security would've withheld $20,000 over the five years until you reach age 67. Once you reach 67, Social Security will recalculate your monthly payments, increasing them in a way that will gradually get you that $20,000 back over the course of your lifetime.
If you're under your FRA and take benefits in 2023, your annual earnings limit is $21,240. If you'll reach your FRA in 2023, the most you can earn in the months leading up to your FRA is $56,520.
3. Not viewing your earnings record
Your Social Security benefit is largely based on your earnings throughout your career and how much you've paid in Social Security taxes. That's why it's extra important to make sure your earnings record -- where Social Security tracks your information -- is accurate.
To check your earnings record, create an account on the Social Security website. Once created, your account should show your annual wages and projected monthly Social Security benefit. Ideally, you check your earnings record annually for accuracy. Mistakes are uncommon, but they do happen; it's better to be safe than sorry.
If you find an error, fill out a Request for Correction of Earnings Record form and submit it to Social Security, along with documentation proving there's an error. There is a limit on the amount of your earnings taxed by Social Security, so high earners may find their earnings record shows a lower number than their salary. For 2023, the maximum taxable earnings is $160,200.
