Retirement is the time for most people to enjoy the fruits of their labor after decades of paying Social Security taxes. Whether the program provides all of your retirement income, or just a portion, you want to avoid any costly uninformed decisions.
Navigating the world of Social Security can sometimes be confusing. Here are three mistakes to avoid at all costs.
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1. Not knowing your full retirement age
One of the most important Social Security numbers you need to remember is your full retirement age (FRA) because it's the age you're eligible to receive your full retirement benefit. Below are FRAs based on birth years:
| 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.
Your FRA is also important because it's the baseline used to determine your monthly payout if you take Social Security benefits earlier than that or delay them.
Receiving benefits before your FRA will result in a reduced amount, determined by the number of months left until you reach that age. For the first 36 months, your benefits will be reduced by five-ninths of 1% for each month. Beyond 36 months, the reduction will be five-twelfths of 1% for each additional month.
Delaying your benefits past your FRA will increase them by two-thirds of 1% for each month until age 70, when it no longer pays to delay.
You want to know your FRA so you can make accurate calculations to determine if taking benefits early, on time, or later is right for you. For instance, if you want to start benefits early but underestimate how much they'll be reduced by, you will leave yourself with less monthly income than anticipated.
2. Overestimating how much you'll receive
The maximum Social Security monthly benefit in 2023 for people at their FRA is $3,627. If you're filing for benefits at 62 this year, the maximum is $2,572; if you're starting at 70, the maximum is $4,555.
But a relatively small number of people actually receive the maximum payout. The average monthly benefit for retirees as of March 2023 was just over $1,833.
To get an idea of how much you'll receive, you can create an account on the Social Security Administration (SSA) website. It should show your annual wages and estimated monthly benefits based on your age at filing.
A good rule of thumb is to check your earnings record annually for accuracy; mistakes aren't common, but they can happen. If you find an error, fill out a Request for Correction of Earnings Record form and submit it to Social Security, along with proof of the error.
There is a limit on the amount of earnings that are taxed by Social Security, so higher earners might find their earnings record on the SSA website shows a lower number than their actual salary. For 2023, the maximum taxable earnings are $160,200.
3. Earning too much while receiving benefits
While receiving benefits, you can continue working. But your earnings could affect your Social Security payment.
If you start receiving benefits before your FRA and earn in excess of a specified limit, the Retirement Earnings Test (RET) will apply. The RET temporarily reduces your benefits until you reach your FRA, and then adjusts them to gradually pay back the withheld amount over time.
For instance, imagine your FRA is 67 and you take benefits at 62 while earning more than the allowed limit. If the RET lowers your yearly benefits by $3,000, Social Security would withhold $15,000 over the five years until you reach age 67. Once you reach 67, the program will recalculate your monthly payments, increasing them in a way that gradually repays your $15,000.
For people taking Social Security benefits before reaching their FRA in 2023, the yearly earnings limit is $21,240. People set to reach their full retirement age in 2023 can earn up to $56,520 in the months leading up to it.
