The Social Security landscape can sometimes be hard to navigate. There are many nuances and annual changes that you have to keep up with, but there's also a lot of fluff you can ignore.
A large part of navigating Social Security is avoiding mistakes that can prove costly. While this list isn't exhaustive, here are three key mistakes to avoid.
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1. Not knowing how taking benefits early or late will affect your payout
One of the most important numbers to know for Social Security is your full retirement age, which is the age at which you're eligible to receive your full monthly benefit. Your full retirement age is based on your birth year as follows:
| 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.
While your full retirement age is when you're eligible for your full Social Security benefits, you can begin receiving benefits as early as age 62, but doing so will reduce your monthly benefit based on how many months away from your full retirement age you are.
Monthly benefits are reduced by five-ninths of 1% for the first 36 months and five-twelfths of 1% for each additional month. For example, if your full retirement age is 67 and you take benefits at 65 (24 months early), they'll be reduced by around 13.33%. If you take benefits at 62 (60 months early), they'll be reduced by 30%.
You can also delay your benefits past your full retirement age, increasing them by two-thirds of 1% each month until you reach age 70. It works out to around an 8% increase each year. You can delay benefits past 70, but they won't increase anymore after that, so there's no need.
2. Not having an idea of how much your benefit will be
To get an accurate idea of how much you can expect from Social Security, you should check your earnings record, which is where Social Security keeps track of all your earnings over the years. Before you can view your earnings record, you need to create an account on the Social Security website.
The information in your earnings record is what Social Security will use to calculate your benefits, so it's important to make sure it's accurate. Note: Higher earners may not see all their income because Social Security only taxes up to a certain amount, called the wage base limit. In 2023, it's $160,200.
In addition to checking for accuracy, you should view your earnings record to get an idea of your projected benefits based on when you begin receiving them. This can help you decide if taking benefits early, at your full retirement age, or late is right for you.
3. Earning too much while receiving benefits early
Claiming Social Security benefits doesn't mean you have to stop earning money. It does, however, mean you should monitor how much you earn if you claim benefits before your full retirement age because it could affect your monthly payout.
Social Security uses a retirement earnings test (RET) for people who take benefits early and earn over a certain amount. People who reach their full retirement age in 2023 can earn up to $56,520 in the months leading up to their birthday. People taking benefits early who won't reach their full retirement age in 2023 can earn up to $21,240.
Your monthly benefit will be reduced if you earn over the limit, but thankfully, it's gradually added back to your benefits once you reach your full retirement age.
Suppose your full retirement age is 67, and you claim benefits at 65 while earning over the limit. If the RET reduces your annual benefits by $2,000, Social Security would withhold $4,000 during the two years until you turn 67. Once you turn 67, Social Security would recalculate your benefits to gradually return your $4,000 over time.
You can earn as much as you want if you've reached your full retirement age.
