Common Mistakes to Avoid When Claiming Social Security Benefits

Navigating Social Security can feel overwhelming. With so much to consider, making the wrong choice could leave you with less financial security than you deserve. That’s why understanding the common pitfalls and avoiding them is essential.

Claiming Too Early Without Considering the Consequences

One of the biggest mistakes is jumping the gun and claiming Social Security as soon as you’re eligible at age 62. Yes, it might seem like a smart move to get money sooner, but it’s important to think long-term. Did you know that by waiting until your full retirement age (FRA) or even later, you could increase your monthly benefit significantly? For many, that extra income can make a big difference in maintaining their lifestyle during retirement.

So, before you rush to claim, ask yourself: Will you need that money right away, or can you wait and let your benefits grow? Waiting until age 70 maximizes your monthly payment, but even delaying a year or two beyond FRA can boost your benefits. Consider your health, life expectancy, and overall financial situation before deciding.

Not Understanding How Work Affects Benefits

Are you still planning to work while claiming Social Security? If so, you’ll want to pay close attention to the earning limits, especially if you haven’t reached your full retirement age. Here’s the deal: if you earn more than the annual limit, a portion of your benefits will be withheld. While this money isn’t lost forever—it gets credited back to you later—it could cause short-term cash flow issues.

For 2024, the annual limit is $21,240 for those under FRA. Earnings above this threshold result in $1 withheld for every $2 earned. Once you hit FRA, there’s a more generous limit, and once you’re past it, there are no restrictions at all. If your income is likely to fluctuate, it’s worth strategizing when to start benefits to avoid unexpected surprises.

Ignoring Spousal and Survivor Benefits

Are you married, divorced, or widowed? If so, overlooking spousal or survivor benefits could mean leaving money on the table. Let’s say your spouse earned significantly more than you. You may be entitled to spousal benefits worth up to 50% of their FRA benefit amount, even if you have your own earnings record. The same goes for survivor benefits if your spouse has passed away.

Divorced? If your marriage lasted at least 10 years, you might still qualify for spousal benefits based on your ex-spouse’s record—no awkward conversations required. Just remember, understanding the nuances of spousal and survivor benefits can help you maximize your Social Security benefits and secure a more comfortable retirement.

Overlooking Tax Implications

Social Security benefits aren’t always tax-free, and this catches many retirees off guard. If you have additional income from pensions, investments, or part-time work, you may need to pay taxes on a portion of your benefits. How much depends on your combined income, which is calculated by adding your adjusted gross income (AGI), non-taxable interest, and half of your Social Security benefits.

For individuals, if your combined income is between $25,000 and $34,000, up to 50% of your benefits may be taxed. For couples filing jointly, the range is $32,000 to $44,000. Exceed those thresholds, and up to 85% of your benefits could be taxable. Knowing this in advance helps you plan better and avoid any unwelcome surprises at tax time.

Forgetting to Account for Longevity

Have you thought about how long you might live? It’s not the most exciting topic, but it’s crucial when planning your Social Security strategy. Many people underestimate how long they’ll need their retirement income to last. If you live into your 90s, will your early claiming decision still serve you well?

The key here is balancing your needs today with what you’ll need later. If you’re in good health and have a family history of longevity, it might make sense to delay claiming. On the flip side, if you’re facing health challenges, an earlier claim might be the better choice. No matter what, consider longevity as part of the bigger picture.

Not Coordinating Benefits with a Spouse

Couples often overlook the importance of coordinating their Social Security claims. Claiming strategies that work for one person might not be the best fit for both. For example, one spouse could claim early to provide immediate income while the other delays to maximize their benefit. This approach not only ensures some money now but also locks in a higher survivor benefit later.

It’s all about teamwork. By thinking through your options together, you can create a strategy that works for your unique situation and maximizes your household income over time.

Skipping Annual Reviews of Your Social Security Statement

When was the last time you checked your Social Security statement? If you’re like most people, it’s probably been a while. But here’s the thing: errors in your earnings record could result in lower benefits when you retire.

Log in to your account annually and review your earnings history to ensure it’s accurate. If there’s a discrepancy, report it to the Social Security Administration (SSA) immediately. It’s much easier to fix these issues now than to deal with them down the road when you’re ready to claim.

Relying Solely on Social Security for Retirement Income

Social Security is a foundation, not a full retirement plan. If you’re counting on it to cover all your expenses, you might end up short. The average monthly benefit in 2024 is around $1,800, which may not be enough for your needs.

To supplement Social Security, explore other income sources like savings, investments, or retirement accounts. Diversifying your retirement income can help you weather financial challenges and maintain the lifestyle you want.

Making a Plan for Peace of Mind

Claiming Social Security is one of the most significant decisions you’ll make for your retirement. Avoiding these common mistakes ensures you’ll get the most out of the benefits you’ve earned. Take time to evaluate your options, review your finances, and create a plan that aligns with your goals. The effort you put in now can make a huge difference in your financial security later.