Everyone wants to get as much money from Social Security as possible, but you need the right strategy. Several factors affect the size of your checks, and if you don't understand them, you could make a costly error. Below, we'll look at a few common -- and expensive -- Social Security mistakes you should avoid.
3 Social Security mistakes you can't come back from
Here are three costly Social Security mistakes you may not be able to undo once you've made them.
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1. Retiring before you've worked at least 35 years
The Social Security Administration looks at your income during your 35 highest-earning years when calculating your monthly benefit amount. Those who haven't worked for at least this long have zero-income years factored into their calculations, and it only takes one of these to lower your benefits.
Some people may be forced to retire early due to layoffs or family or health issues. These individuals may have no choice but to accept a smaller benefit. But for those who can continue working, it's best to remain in the workforce for at least 35 years.
Working even longer could be helpful if you're able to do it. Many people earn more later in their careers than they did starting out. Working more than 35 years means their lower-earning years get pushed out of their benefit calculations and replaced with more recent, higher-earning years, resulting in larger Social Security checks.
2. Not maximizing your income today
We've already discussed how the Social Security Administration looks at your income during your working years when calculating your benefit. So it makes sense that for most people, boosting your income today will lead to larger Social Security checks in retirement.
The only people this doesn't apply to are those earning more than $160,200 in 2023. This is the maximum income subject to Social Security taxes this year, so anything over this limit won't help your checks. This ceiling will rise to $168,600 in 2024.
Those who don't take steps to maximize their income today may not get as much from Social Security in retirement as they'd hoped. Things like negotiating a raise, switching to a better-paying job, or starting a side hustle are all viable options for those trying to boost their income. Think about which options make the most sense for you and give them a try.
3. Never checking your earnings record
Everyone has an earnings record where the Social Security Administration keeps track of how much income they've paid Social Security taxes on throughout their career. This information is usually correct as it comes from the IRS, but mistakes happen. For example, if you fail to notify your employer of a name change or you or your employer transpose digits in your Social Security number on your tax documentation, the Social Security Administration may not know about all the income you earned that year.
You want your earnings record to be correct so you aren't short-changed. It's important to check yours annually. You can do this by creating a my Social Security account. Review the information here and make sure it aligns with your own records. If not, fill out a Request for Correction of Earnings Record form and submit it, along with copies of your tax documentation showing your real income, to the Social Security Administration.
You only have three years, three months, and 15 days after the year in which the wages were paid to make this correction, unless you qualify for an exception. So it's best to act promptly if you spot a mistake.
1 Social Security mistake you may be able to undo
One of the most common Social Security mistakes is signing up at the wrong time. Your age at sign-up affects the size of your checks enormously. Everyone has a full retirement age (FRA), which is when you qualify for your full benefit based on your work history. This is 66 to 67 for today's workers.
You can sign up earlier than this, but you'll get smaller monthly checks -- up to 30% less. You can also delay benefits beyond your FRA, and your checks will continue growing until you reach 70, where you'll get up to 32% more than you would at your FRA.
But delaying isn't always the best move. Signing up early could be wiser for you if you don't expect to live a long lifespan or you need your checks to pay your bills right now.
You might regret signing up early, though, if you didn't understand the implications of doing so. Fortunately, the Social Security Administration gives you a one-time option to undo this, but there are conditions:
- You may only do this within the first 12 months after signing up for benefits.
- You must give back all the money you've received in Social Security benefits to date.
- You must repay any money that anyone else claiming on your work record (like your spouse) has received since you signed up.
Those who cannot fulfill these requirements will not be able to undo their decisions. But if you can, the government will treat you as though you'd never claimed before, and you'll receive larger checks when you sign up again.
If you're interested in doing this, fill out a Request for Withdrawal of Application form and submit it to the Social Security Administration. It may take time, but it could lead to a larger lifetime benefit for some.
