Social Security is an important source of income for many retirees. Unfortunately, it’s all too easy to make mistakes that significantly reduce your benefits. In fact, only 15% of Americans preparing for retirement strongly agree that they know how to maximize their Social Security benefits, according to a 2022 report from the Nationwide Retirement Institute.
The good news is many of these mistakes are avoidable once you’re aware of them. In this blog article, we’ll explore eight common mistakes people make when claiming Social Security benefits and how to avoid them, so you can maximize your income in retirement.
To maximize your Social Security benefits, avoid these eight potentially costly mistakes:
Mistake #1: Claiming Your Benefits at the Wrong Time
The age at which you claim Social Security benefits can significantly affect the amount of retirement income that you receive. By understanding the impact of claiming Social Security benefits at different ages, you can make an informed decision about when to claim benefits based on your financial needs and goals.
Your full retirement age (FRA) is the age at which you’re entitled to receive your full Social Security benefit amount based on your earnings history. For those born in 1960 or later, your FRA is 67.
To maximize your Social Security benefits, it’s best to claim them after you reach your FRA—if you can.
If you claim them sooner, your benefits will be permanently reduced by up to 30% depending on your age. On the other hand, if you delay claiming Social Security benefits beyond your FRA, your benefit amount will increase by 8% per year, up to age 70.
Before claiming your Social Security benefits, be sure to consider factors such as your other sources of retirement income and projected expenses. You can also use the Social Security Administration’s Retirement Estimator to help you determine the optimal time to start taking benefits.
Mistake #2: Not Maximizing Your Spousal Social Security Benefits
Spousal benefits can be especially beneficial for couples with a significant difference in earnings history. That’s because the lower-earning spouse can receive a higher benefit amount based on the higher-earning spouse’s earnings history.
Your spousal benefits amount is generally equal to 50% of your spouse’s FRA benefit amount. For example, if your spouse’s FRA benefit amount is $2,000 per month, you could be eligible to receive up to $1,000 per month in spousal benefits.
To maximize your Social Security benefits, first be sure to understand the eligibility requirements for spousal benefits.
Specifically, you must be at least 62 years old and have been married at least one year to be eligible. If you’re divorced, you must have been married for at least ten years and not have remarried before age 60.
In addition, be careful not to claim your spousal benefits too early. If you claim them before your FRA, your benefit amount will be permanently reduced.
Also, keep in mind if you’re eligible for your own Social Security benefits based on your own earnings history, you’ll receive the higher of your own benefit amount or the spousal benefit amount.
Mistake #3: Ignoring the Impact of Taxes on Your Social Security Benefits
Depending on your income level, up to 85% of your Social Security benefits may be subject to federal income taxes. To maximize your Social Security benefits, make sure you’re aware of these income thresholds.
The IRS uses your “combined income” to determine how your benefits are taxed. You can calculate your combined income by starting with your adjusted gross income (AGI) and adding back nontaxable interest, as well as half your Social Security benefits amount in a given tax year.
In 2023, single taxpayers with combined income between $25,000 and $34,000 may have to pay federal income taxes on up to 50% of your benefits. If your combined income exceeds $34,000, up to 85% of your benefits amount may be taxable.
These same percentages apply to joint taxpayers with combined income above $32,000 and $44,000, respectively.
Mistake #4: Ignoring the Earnings Test
If you start taking Social Security benefits before your FRA and continue to work, your benefits may be reduced if you earn more than a certain amount. In 2023, for example, your benefits will be reduced by $1 for every $2 you earn over $21,240—if you start taking benefits before your FRA.
To maximize your Social Security benefits while you’re still working, try to avoid claiming your benefits until you reach your FRA. Once you reach your FRA plus one month, your earnings no longer reduce your benefits, even if you earn more than the annual limit.
Alternatively, you may want to cut back your work hours to stay below the earnings limit. A financial planner can help you determine the best strategy to maximize your Social Security benefits.
Mistake #5: Not Considering How Divorce Affects Your Social Security Benefits
If you’re divorced, you may be entitled to claim Social Security benefits based on your ex-spouse’s earnings history. In general, those who meet the following criteria can receive a divorced spouse benefit equal to 50% of your ex-spouse’s FRA benefit amount:
- Your ex-spouse is entitled to Social Security retirement benefits.
- You were married for at least 10 years.
- You’re at least 62 years old.
- You’re currently unmarried (unless your ex-spouse has remarried).
It’s also important to note that your ex-spouse doesn’t need to have claimed their own Social Security benefits for you to claim your divorced spouse benefit.
To maximize your Social Security benefits after divorce, try to avoid claiming your divorced spouse benefit before reaching your FRA. Otherwise, the amount you receive will be permanently reduced.
In addition, if you’re eligible for your own Social Security benefits based on your own earnings history, you will receive the higher of your own benefit amount or the divorced spouse benefit amount.
Mistake #6: Failing to Consider Survivor Benefits
If you lose your spouse prematurely, you may be eligible for Social Security survivor benefits. As the surviving spouse, you can receive a survivor benefit equal to 100% of your spouse’s benefit amount if you’re at FRA or older.
To maximize your Social Security survivor benefits, first be sure to understand the eligibility requirements. If you’re the surviving spouse, you must meet the following criteria:
- Your deceased spouse must have worked long enough and paid enough Social Security taxes to be insured for benefits.
- You must be at least 60 years old (or 50 if you have a qualifying disability).
Keep in mind your survivor benefits may be reduced if you claim them before you reach your FRA or are entitled to your own Social Security benefits based on your own earnings history. In addition, survivor benefits may be subject to federal income taxes if your income exceeds certain thresholds.
Mistake #7: Not Checking Your Earnings Record
If your earnings record is incorrect or incomplete, it can result in a lower benefit amount, potentially costing you thousands of dollars in lost retirement income.
The easiest way to avoid this mistake is to check your earnings record annually to ensure it’s accurate and complete. You can create an account with the Social Security Administration (SSA) to keep an eye on your statement.
If you do find errors on your earnings record, be sure to contact the SSA as soon as possible to correct them. Fixing any inaccuracies before you’re ready to retire can help you maximize your Social Security benefits when it comes time to claim them.
Mistake #8: Not Seeking Guidance from Satori Wealth Management to Maximize Your Social Security Benefits
The decisions you make about when and how to claim your Social Security benefits can have long-term implications for your retirement income and financial security. Fortunately, a comprehensive retirement plan can help you avoid potentially costly mistakes, so you can maximize your Social Security benefits.
Satori Wealth Management can help you navigate the complexities of Social Security, as well as the trade-offs and considerations involved in claiming your benefits. We can also help you explore strategies for maximizing your retirement income while minimizing the impact of taxes.
If you’re ready to begin your retirement planning journey, schedule your Free RetireNow™ Checkup today.
Danny G. Michael is the founder and CEO of Satori Wealth Management, Inc. He has 20 years of experience in retirement planning working with individuals, families, and business owners.