Mistakes in Social Security that Could Cost You a Fortune

Introduction

Social Security is a government program that offers retirement benefits to those who qualify. However, navigating the program and understanding its rules can be overwhelming and confusing. Making mistakes when filing for Social Security benefits could cost you thousands in lost benefits over the years.

This post will discuss some common mistakes people make when filing for Social Security benefits and how to avoid them. Whether you're about retirement or just starting out, this information is critical to ensure that you get the benefits you deserve. 

So, let's get started and discover how to avoid making costly Social Security blunders.

Common Social Security Errors That May Cost You

1.   Claiming Benefits Too Early

Claiming benefits too early is a common mistake that many people make when it comes to Social Security. While it may be tempting to start collecting benefits as soon as possible, doing so could cost you in the long run.

You might cut your monthly benefit amount by up to 30% if you seek benefits before reaching full retirement age. This reduction is permanent and will impact your income for the rest of your life. Additionally, if you continue to work while receiving benefits, your income could trigger withholdings that further reduce your benefits.

To avoid these errors, it is critical to carefully examine when to file for Social Security benefits and to have a clear grasp of how the system operates. By waiting until your full retirement age or even delaying benefits, you can maximize your monthly benefit amount and ensure a more financially secure future.

2.   Not Maximizing Spousal Benefits

Not maximizing spousal benefits is another common social security mistake that could cost you thousands of dollars in retirement. Many couples do not realize that they are entitled to spousal benefits, which are based on the higher-earning spouse's work record.

Typically, a spouse can receive up to 50% of the higher earner's benefit amount. However, if both spouses claim their benefits early, they could be missing out on potential spousal benefits. Additionally, if one spouse delays claiming benefits until age 70, the other spouse can claim spousal benefits while waiting for their own benefit to grow.

It's important to note that claiming spousal benefits does not impact the higher-earning spouse's benefit amount. Therefore, it's crucial to carefully consider and maximize spousal benefits to ensure that you and your spouse receive the maximum amount of Social Security benefits possible in retirement.

3.   Failing to Consider Taxes

Another major social security error that seniors make is neglecting to consider taxes, which might wind up costing them thousands of dollars over time.

Many people don't realize that their social security benefits can be subject to federal income tax if they have other sources of income, such as a pension or IRA. In fact, up to 85% of your social security benefits could be taxed if your combined income exceeds a certain threshold. Unfortunately, failing to consider taxes can lead to unexpected tax bills and may have a significant impact on your retirement budget.

To avoid making this error, consider taxes while developing a retirement plan and consult with a financial adviser or tax specialist who can assist you in developing a strategy to manage your tax liabilities. Taking a moment to think about taxes ahead of time might save you a lot of money in future years and help you avoid unneeded financial hardship during retirement.

4.   Overlooking Survivor Benefits

Survivor benefits are intended to offer financial assistance to family members of dead persons who worked and contributed to the Social Security system. Often, people assume that their Social Security benefits will end upon their death, but that is not always the case.

Surviving spouses and dependent children may be entitled to receive monthly Social Security payments based on the deceased individual's earnings. However, if you do not incorporate survivor benefits in your retirement planning, you may leave your loved ones without the financial resources they need to live comfortably after your death.

To avoid this mistake, it is vital to educate yourself on the survivor benefits available through Social Security and factor them into your overall financial planning strategy.

5.   Not Updating Your Earnings Record

Not updating your earnings record is a common social security mistake that could cost you. Your Social Security payments are calculated based on your earnings history, and if your earnings are not correctly documented or are missing from your record, you may get fewer benefits than you are entitled to. This could happen if you change jobs frequently or have multiple employers and you fail to report your earnings to the Social Security Administration.

To avoid this mistake, it is important to review your earnings statement annually and report any errors or omissions to the Social Security Administration. Keep copies of your pay stubs and W-2 forms as well to ensure that your wages are appropriately reported.

Taking these measures will help guarantee that your future Social Security payments are not jeopardized by a minor error, such as failing to update your earnings record.

6.   Failing to Work For At Least 35 Years

If you have less than 35 years of work experience, your Social Security payout may be less than you anticipate because it is based on your highest 35 years of earnings. Additionally, if you don't have enough credits, you may not even qualify for Social Security at all. Some people may have gaps in their work history owing to factors such as sickness, caregiving obligations, or unemployment, but it is critical to strive to work for at least 35 years if feasible.

To avoid this mistake, you can start saving for retirement as early as possible and try to maximize your earnings by taking advantage of opportunities to advance in your career or take on additional work. If your employment history has gaps, explore how you might be able to make up the lost credits through part-time or freelance work.

Conclusion

Social Security is a crucial program that offers financial assistance to qualified people throughout their retirement years.

However, navigating the system and understanding its rules can be overwhelming and confusing, leading to costly mistakes.

By avoiding common Social Security mistakes, such as claiming benefits too early, failing to maximize spousal benefits, overlooking taxes and survivor benefits, not updating your earnings record, and not working for at least 35 years, you can ensure that you receive the benefits you deserve and have a financially secure retirement.

It is critical to educate yourself on the Social Security program and engage with financial advisors to create a complete retirement plan that takes your particular requirements and aspirations into consideration. By taking the time to make informed decisions, you can avoid costly Social Security mistakes and enjoy a comfortable retirement.