If you're gearing up for retirement, then you're hopefully doing plenty of reading on Social Security. The reality is that those benefits are likely to play a big role in your finances once you stop working. So it's important to have a plan for when you'll sign up and how much you'll rely on them.
Unfortunately, a lot of retirees don't think things through when it comes to Social Security and end up facing financial difficulties as a result. Here are some Social Security traps to avoid as you plan your retirement.
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1. Claiming benefits as early as possible
You may be inclined to sign up for Social Security as early as possible to get your money as soon as possible. Once you turn 62, you're welcome to claim benefits at any point in time.
The problem, though, is that claiming Social Security at 62 will shrink your monthly payments by about 30% compared with+ waiting until 67, assuming you were born in 1960 or later. And even if you have decent savings, those smaller monthly checks could make it tough to keep up with your expenses.
Plus, even if you can afford your basic expenses with a smaller monthly Social Security benefit, you may not get to enjoy the experiences and activities you've always wanted to. So before you claim benefits as early as possible, run the numbers and see what you have to gain by waiting.
2. Assuming your COLAs will hold up
Social Security benefits are eligible for a cost-of-living adjustment (COLA) each year. The point of COLAs is to help beneficiaries keep up with their costs as inflation drives them higher.
You might assume that those COLAs will protect you from rising costs. But the reality is that Social Security COLAs have long been failing seniors.
The Senior Citizens League, an advocacy group, reported that between 2010 and 2024, Social Security recipients had lost 20% of their buying power due to insufficient COLAs. So unless lawmakers make a change on how they're calculated, the same thing is likely to keep happening. If you don't have outside income, you might struggle to continue covering your personal expenses over time.
3. Figuring you'll be all set on retirement income with a late filing
The problem with retiring on Social Security alone is that if you're an average earner, those benefits will only replace about 40% of your pre-retirement wages. Most seniors need a lot more income than that to live comfortably, though, which is why it's best to have outside income streams, like savings.
You may be planning to delay your Social Security claim for boosted monthly benefits instead of working to grow your savings. But that's not necessarily a great plan.
There's nothing wrong with delaying Social Security for larger monthly checks. But even if you delay your claim, and even if Social Security therefore ends up replacing more than 40% of your former paycheck, those benefits might still not be enough -- especially given that their COLAs don't tend to hold up well.
It's best to have additional income even if you're planning to delay your Social Security filing all the way until age 70, which is when you stop getting credit for waiting. If you're very close to retirement and don't have a lot of money saved, you may want to consider working an extra year or two, or cutting back on expenses.
The more strategic you are with Social Security, the more financially sound and rewarding your retirement might be. Be careful to avoid these Social Security traps so you're able to enjoy retirement to the fullest.
