Countless seniors depend on Social Security to keep up with their finances. But a large number of recipients risk losing out on key benefits, and the reason boils down to needless mistakes. If you're looking to make the most of Social Security, here are four major blunders to avoid at all costs.
1. Not knowing your full retirement age
Though your Social Security benefits themselves are calculated based on how much you earn during your career, the age at which you first claim those benefits can cause them to go up, go down, or stay the same. If you wait until full retirement age to file for benefits, you'll get the exact amount you're entitled to based on your earnings record without having to worry about a reduction. Only 26% of Americans, however, know their full retirement age, which means the bulk of adults are at risk of having their benefits slashed.
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Figuring out your full retirement age is easy, since that number is based on your year of birth. You can use the following chart to see when you can start collecting Social Security without penalty.
Year of Birth
Full Retirement Age
66 and 2 months
66 and 4 months
66 and 6 months
66 and 8 months
66 and 10 months
DATA SOURCE: SOCIAL SECURITY ADMINISTRATION.
Keep in mind that there are certain scenarios in which it pays to file for benefits prior to full retirement age (one of which we'll get to in a minute). But knowing that number is a critical starting point.
2. Not factoring your health into your decision to file
Though there are consequences to claiming Social Security at various ages, the interesting thing about the program is that it's designed to pay you the same lifetime benefit regardless of when you first file. As you can see in the chart above, today's workers will reach full retirement age at 66, 67, or 66 and a number of month. But those eligible for Social Security get an eight-year window to file for benefits that begins at age 62 and ends at age 70. Still, if you live an average life expectancy, you don't necessarily need to worry quite so much about when to take benefits, because there's a good chance you'll break even in the end.
But what happens if you don't live an average life expectancy but pass away sooner? In that case, you'll probably end up losing money by not filing for benefits as early as possible. That's why it's so important to consider the state of your health when determining when to file for Social Security. If your health is poor, it's generally wise to file the moment you can. If your health is fantastic, then you might come out ahead by delaying benefits as long as possible. And if your health is just fine, you might land somewhere in the middle.
3. Counting on those benefits to sustain you in retirement
Many of today's seniors rely on Social Security to provide the bulk of their income -- and that's a huge mistake. Social Security was never designed to sustain retirees fully; rather, it's meant to supplement your savings. In a best-case scenario, those benefits will replace about 40% of the average worker's pre-retirement income, but most folks need more like 80% of their former earnings to live comfortably in retirement. If you've been slacking on the savings front, let this be your wakeup call: You can't live off Social Security alone, and if you try to, you're likely to struggle.
4. Not filing for benefits by age 70
Though you're entitled to your full monthly benefit once you reach full retirement age, if you don't need your money immediately, there's a good reason to hold off. For each year you delay benefits past full retirement age, you'll snag an automatic 8% boost that will remain in effect for the rest of your life. This incentive, however, runs out at age 70, which means that once you hit that milestone, you should claim benefits right away.
Waiting past age 70 won't do you any good. If anything, you'll risk losing money, because Social Security will only pay up to six months' worth of retroactive benefits -- which means that if you realize your mistake too late, you'll end up forgoing income that could've been yours.
Filing for Social Security at the wrong age, or being uninformed about how those benefits work, could end up costing you big-time in retirement. So don't be a victim. Instead, arm yourself with knowledge to avoid the above traps. You'll be thankful you did in the long run.
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