Social Security is a complicated program. There are many rules about retirement benefits, survivors benefits, spousal benefits, and more that many Americans don't fully understand.
Avoiding Social Security mistakes can make it easier to plan for retirement, put additional money in your pocket, and prevent you from making unnecessary sacrifices when it comes to a major source of inflation-protected retirement income. Here are five Social Security mistakes that you should try to avoid.
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Not checking your statement
Every year, the Social Security Administration (SSA) issues a Social Security statement to all American workers, even if they don't yet qualify for benefits, based on their work records. Far too many people don't bother to read theirs -- especially the younger generations.
Your Social Security statement has some extremely important information. It can be accessed by creating an account (if you don't have one already) at www.ssa.gov.
There are two big reasons you should read your annual Social Security statement, even if you have decades until retirement. First, the statement contains a valuable tool in retirement planning -- estimates of your work record so far. Your benefit amount is based on this.
Second, your statement will contain a year-by-year account of your earnings, and it's important to check it for accuracy. If your income is underreported, it can negatively affect your future Social Security benefit. It can be far easier to correct errors if you spot them early.
Not understanding full retirement age
Nearly 40% of Americans don't know what their full retirement age is for Social Security purposes. Many mistakenly believe it's 65, since that's the eligibility age for Medicare.
For those born in 1960 or later, full retirement age is 67 years old. This is the age at which you can start collecting your full Social Security benefit with no reductions.
If you choose to take Social Security before full retirement age, your benefit will be permanently reduced. On the other hand, if you wait beyond full retirement age, your benefits will be permanently increased by 8% for every year, until as late as age 70.
Planning to claim early because the program is "bankrupt"
Have you heard that Social Security is bankrupt or that the program won't be around for much longer? It's true that Social Security is projected to run out of reserves in 2034 at the current rate, but it has trillions of dollars in reserves and would still have incoming tax revenue if its reserves were to run out. Even in a worst-case scenario, Social Security would still be able to pay out about three-fourths of promised benefits.
There are some good reasons to start collecting Social Security early. But claiming Social Security earlier than you really want to because you're worried about its future existence isn't necessary.
Misconceptions about the earnings test
If you claim Social Security and haven't reached full retirement age and your earnings are in excess of a certain threshold, some or all of your Social Security benefit can be withheld. This is known as the earnings test. Some people think this is lost money and will turn down job opportunities as a result of this misunderstanding.
Any withheld money isn't necessarily lost. Instead, it will be used to increase your benefit amount once you reach full retirement age. In other words, if your benefits are reduced now because you earn too much, it will make your future monthly checks larger than they otherwise would have been.
Getting spousal benefits wrong
Social Security is more than benefits for retired workers. There's also a program called spousal benefits that provides income for spouses who either didn't work or who earned significantly less than the person they're married to.
There are some common mistakes people make when it comes to spousal benefits. For example, unlike retirement benefits, spousal benefits don't get any higher after full retirement age, so it might not make sense to wait beyond your full retirement age to start collecting.
This isn't an exhaustive list
As a final thought, it's worth pointing out that these aren't the only Social Security mistakes people make. Social Security is a rather complicated program and there's a lot of information to learn.
However, it's also a major source of retirement income for most Americans and is the only inflation-protected income stream many retirees have, so it's worth learning as much as you can about it.
