5 Social Security Mistakes to Avoid That Could Reduce Your Retirement Income
You've spent decades paying into Social Security. But do you know how to maximize your benefits? Knowing which Social Security mistakes to avoid before claiming can mean the difference between a comfortable retirement and leaving real money behind.
Social Security is more complex than it seems. Claiming at the wrong time, failing to coordinate with a spouse, overlooking tax rules, or not linking Social Security to your overall financial plan can each cost you. For some retirees, these mistakes can add up to tens of thousands of dollars lost over a 20- or 30-year retirement.
Since most Social Security elections are permanent, you can't turn back once you've made a decision. To help you avoid costly errors, let's walk through five key Social Security mistakes to watch out for before you claim.
1. Claiming benefits too early
You can start collecting Social Security retirement benefits at age 62. For many, that milestone is tempting, but claiming early permanently lowers your monthly benefit.
Your full retirement age, or FRA, is the age at which you receive 100% of your calculated benefit. For anyone born in 1960 or later, FRA is 67. Claiming at 62 reduces your benefit by up to 30% compared to claiming at 67. Claiming at 64 or 65 still leads to a significant, permanent reduction. The reduction never reverses itself.
On the other side of that equation, delaying benefits beyond your full retirement age increases your monthly payment by 8% for each year you wait, up to age 70. Delayed retirement credits stop accumulating at 70, so there's no additional advantage to waiting past that age. Someone with a $2,000 monthly benefit at FRA could receive $2,480 at age 70. This 24% increase, spread over two decades of retirement, results in a significant difference in total lifetime income.
Early claiming makes sense for some people, especially those in poor health, those without other income to cover the gap, or those whose finances make waiting impractical. The point is that the decision needs careful analysis rather than being made reflexively.
2. Not coordinating spousal and survivor benefits
For married couples, Social Security decisions should be coordinated, not separate. You need a strategy that considers how each spouse's claim impacts the other's benefits.
Spousal benefits let a lower-earning spouse receive up to 50% of the higher earner's FRA benefit. Survivor benefits go further: when one spouse passes away, the surviving spouse can take over the full benefit of the higher earner. This means how the higher earner's Social Security claim affects the surviving spouse's income for the rest of their life.
A common approach that works well for many couples is for the higher earner to delay claiming benefits as long as possible to maximize the survivor benefit. Also, in this situation, the lower earner claims earlier to provide some household income. The best approach depends on the age gap between spouses, health considerations, and overall income needs. What rarely makes sense is for both spouses to claim at 62 without considering what happens when one of them passes away.
Failing to coordinate spousal benefits is one of the most important Social Security mistakes to avoid because the impact affects not just your retirement but also your spouse's financial security years down the road.
3. Overlooking taxes on benefits
Many retirees are surprised to learn that Social Security benefits can be taxable. Whether your benefits are taxed, and at what rate, depends on your "combined income," which is your adjusted gross income, plus any nontaxable interest, plus half of your Social Security benefits.
For individuals, benefits are taxed when their total income exceeds $25,000. For married couples filing jointly, the threshold is $32,000. Once combined income reaches higher levels, up to 85% of your Social Security benefits may be subject to federal income tax.
Taxes on Social Security often surface when retirees start withdrawing from traditional IRAs or 401(k)s as they begin collecting benefits. These withdrawals are considered ordinary income and can quickly push total income above certain thresholds. A retiree expecting $2,500 per month from Social Security might find that a significant portion of that income is taxed at their marginal rate when other income sources are included.
Strategic withdrawal sequencing and Roth conversion planning before Social Security starts can reduce its tax impact. For a more detailed explanation of how this works, read our related blog How Social Security Is Taxed (and Smart Strategies to Reduce It).
4. Underestimating how long retirement will last
People often underestimate their life expectancy, which can lead them to undervalue the long-term benefits of delaying Social Security. Today, a 65-year-old man can expect to live into his mid-80s on average. A 65-year-old woman has an even longer average life expectancy. For married couples, the chances that at least one spouse will live into their 90s are higher than most people realize.
A retirement that lasts 25 or 30 years looks very different than one planned for 15.
Someone who claims Social Security at 62 and lives until 90 receives reduced payments for 28 years. Someone who waits until 70 receives fewer total years of benefits, but their monthly amount is much higher. In many cases, you'll get a larger total payout over your lifetime if you wait until 70.
Unlike a 401(k) or other investment accounts that can fluctuate or run out, Social Security provides a guaranteed monthly income for life, adjusted annually for inflation. For retirees whose other assets might decline over time, a higher guaranteed benefit becomes increasingly important. Considering realistic longevity is one of the most important Social Security mistakes to avoid, and it's simple to correct during planning, but costly to overlook.
5. Treating Social Security as a separate decision
Social Security affects your taxes, Medicare premiums, investment withdrawal plan, and long-term income security. When it is treated as a standalone decision rather than part of a comprehensive retirement plan, chances to optimize are missed.
Taking large IRA or 401(k) withdrawals early in retirement can raise your taxable income and cause more of your Social Security benefits to become taxable once you start claiming. Your total income in retirement also affects whether you pay income-related monthly adjustment amounts, or IRMAA, which boost Medicare Part B and Part D premiums for higher earners.
Planning Social Security alongside your tax strategy and withdrawal order gives you more flexibility. Decisions made in your early retirement years, before benefits start, can significantly influence the tax efficiency of your income for many years.
Why Social Security mistakes to avoid can cost more than most people expect
Social Security is one of the few guaranteed, inflation-adjusted sources of lifetime income available to most retirees. Its rules are complex, and the best choice varies widely from person to person. Your health, your spouse's situation, your other income, your tax bracket, and your timeline should all influence your decision.
These decisions should not be made quickly or based on what a neighbor or coworker did. Getting them right requires looking at the full picture.
Ready to review your Social Security strategy?
At Allegiant Wealth Strategies, we work with individuals and families across the Battle Creek, Kalamazoo, and Portage areas in creating retirement plans that address income, taxes, and long-term financial Security. If you are nearing retirement or have recently retired, starting with a conversation about Social Security is a practical step.
Knowing the Social Security mistakes to avoid is helpful, but having a plan tailored to your specific situation truly makes a difference. My colleagues and I are happy to meet with you for a complimentary, no-obligation consultation. You can schedule your consultation by calling 269-218-2100 or contacting us through our website.
Frequently asked questions
What is the best age to claim Social Security?
There isn't a universal answer. The best age to claim depends on your health, financial situation, whether you're married, and when you need the income. Waiting usually increases your monthly benefit, but claiming early might make sense depending on your circumstances.
Can I work while receiving Social Security?
Yes, but if you haven't yet reached your full retirement age, your benefits might be temporarily reduced if your earned income goes over the annual limit. Once you reach full retirement age, you can earn any amount without having your benefits reduced.
How is my Social Security benefit calculated?
Your benefit is based on your 35 highest-earning years of work history. The Social Security Administration adjusts those earnings for inflation and then uses a formula to determine your primary insurance amount, which is the benefit you receive at full retirement age.
This material is provided for general informational purposes only and should not be construed as investment, tax, or legal advice, or as a recommendation to take any particular action. Although we go to great lengths to ensure our information is accurate and useful, we recommend that you consult a tax preparer, professional tax advisor, or lawyer. The information provided is not intended to be specific to any individual’s personal circumstances. There is no guarantee that any strategy will be successful or that any specific result will be achieved. Outcomes will vary based on individual factors including health, longevity, income needs, tax considerations, and market conditions. Examples are hypothetical and for illustrative purposes only and do not reflect actual client results. Social Security rules, tax thresholds, and benefit calculations are subject to change. This material is not affiliated with or endorsed by the Social Security Administration. Investors should consult with their financial, tax, or legal professional before making any decisions regarding Social Security or retirement planning strategies.
Allegiant Wealth Strategies offers securities and advisory services through Cetera Wealth Services, LLC, member FINRA/SIPC. Advisory services offered through Cetera Investment Advisers LLC, a Registered Investment Adviser. Cetera is under separate ownership from any other named entity. Allegiant Wealth Strategies has offices in Battle Creek and Portage, Michigan, from which we serve Calhoun County, Kalamazoo County, and Kent County (Grand Rapids). The Allegiant Wealth Strategies team offers no-obligation financial planning consultations; call 269-218-2100 or contact us here.