Social Security, undoubtedly, is one of the most important sources of income when you retire. Thus, it is essential to make the most of it. One easy way to maximize your Social Security is to avoid the common mistakes that most people make. Small mistakes in handling Social Security could end up costing you a lot of money over the rest of your life. So, to help you maximize your Social Security, this article discusses the common Social Security mistakes to avoid.
Mistakes that people generally make with Social Security aren’t always at the time of claiming the benefits. Rather, people also tend to make mistakes during their work years, i.e., when their Social Security is growing. Irrespective of the timing, such mistakes could prove costly as they may slow down your Social Security growth.
Here are some common Social Security mistakes to avoid:
Claiming Benefits Early
This is the most common mistake people make with Social Security, and there are many reasons for it, including being unfamiliar with the drawbacks of claiming early, blindly following others, and more.
To avoid this mistake, it is important to understand your full retirement age (FRA). The full retirement age for anyone born in 1943 or later is between age 66 and 67, according to the Social Security Administration (SSA).
Also, it is important for you to know that the Social Security program has been designed in a way to incentivize people to delay claiming benefits.
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In other words, your retirement benefits shrink by a certain percentage depending on your birth year if you claim the benefits early. On the other hand, the annual benefits increase by the same percentage if you delay claiming the benefits.
You can refer to the SSA’s easy-to-use tool to get an idea of your annual benefits if you claim them before full retirement age.
Not Working Long Enough
Your benefits are calculated using the average of your 35 highest-earning years. So, if you have worked less than 35 years, the SSA will replace each of those years with $0. This will significantly bring down your average, and in turn, Social Security.
Thus, it is important that you do the math correctly to ensure that you work for at least 35 years before you go on to claim the benefits. In case you are some years short, you can work for additional years and delay claiming the benefits.
Forgetting About Taxes
Many people may not be aware that Social Security benefits are taxable. The tax amount on Social Security depends on your annual income and tax filing status.
One easy way to find out if you need to pay tax on Social Security is to add half of your Social Security income to your other income, such as pensions, dividends, etc. If this total is more than $25,000 and your filing status is single, then some part of your benefits may be taxable.
If you file jointly with your spouse, you need to add half of your Social Security and half of your spouse’s Social Security to your combined income. If the total income is over $32,000, part of your Social Security may be taxable.
You may end up paying taxes on 85% of your benefits, depending on your filing status and annual income. You can visit the IRS website for more information on taxes on Social Security benefits.
Not Knowing That Benefits Increase With Time
Many people may not be aware that Social Security benefits increase over time to account for the rise in the general price level. Specifically, the COLA (cost-of-living adjustment) adjustment is made to benefits to compensate for the rising economic prices.
For example, the COLA adjustment for 2023 was 8.7%. So, if someone received $10,000 in benefits last year, their 2023 benefits will be $10,870. COLA adjustments are usually announced in the last quarter. The COLA adjustment for 2024 is expected to be less than this year because inflation has gradually cooled this year so far.
Not Checking Your Earnings Record
Even if you are years away from claiming Social Security, you should regularly check your earnings record. Your Social Security amount depends largely on your earnings record. So, if that record is inaccurate, your benefits will be incorrect as well.
There are several reasons why your earnings record could be incorrect, such as clerical error, a change in filing status not processed correctly, or an employer reporting incorrect earnings.
Thus, it is recommended that you check your income statement regularly. If you come across any error, you should immediately report it to the SSA along with supporting proof, such as your W-2 or pay stubs. The longer you delay reporting the error, the harder it is to prove the accuracy.
Only Factoring Your Own Benefits
It is a misconception that you’re entitled to benefits based only on your earnings record. The truth is you may be able to claim a higher benefit based on your spouse’s earnings record.
For example, you didn’t qualify for the benefit or qualify for a smaller benefit as you were a stay-at-home parent. You could, however, qualify for bigger benefits if your spouse’s work record is better than yours. Even if you are divorced, you are allowed to claim benefits based on your ex-spouse’s earnings provided a few requirements are met.
Final Words
These are some common Social Security mistakes to avoid. You can easily avoid most of these mistakes if you have basic knowledge of Social Security, including how it works. You can get all this information from the Social Security Administration website. You can also consult an accountant or Certified Financial Planner to help maximize your Social Security benefits.
This article originally appeared on ValueWalk
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