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Even a minor Social Security misstep can rob your nest egg of tens of thousands of dollars in retirement benefits.
So, it pays to understand how the system works and how to maximize your Social Security checks.
The following are some of the biggest and most costly mistakes you could make when navigating Social Security — and how to avoid making them.
1. Taking Social Security early
It’s tempting to start taking Social Security before you reach what the federal government calls your “full retirement age.” But you’ll wind up with a smaller check each month.
Technically, you should receive the same total amount of benefits over the span of your retirement no matter the age at which you claimed benefits. The Social Security system is designed to be neutral in this regard.
Still, claiming early can be risky because once you claim benefits, you will be stuck with the same size check for life. The amount of a person’s monthly benefit typically will never increase except for inflation adjustments.
If you’re the main breadwinner in your family, you may want to think twice about starting your Social Security benefit early since your spouse may receive that smaller benefit amount one day.
Jeffrey A. Drayton of Jeffrey A. Drayton Financial Planning and Wealth Management in Maple Grove, Minnesota, tells Money Talks News:
“When one of you dies, the surviving spouse will get to keep whichever benefit is larger. If yours is the larger benefit, do you really want to reduce it? Doing so means that you might be reducing this lifelong annuity that gets adjusted for inflation permanently not just for yourself but also your spouse.”
2. Claiming benefits and continuing to work
If you claim Social Security before reaching full retirement age and continue working, you might have to pay penalties against your Social Security benefit. It depends on how much money you earn, as we detail in “The Danger of Working While Collecting Social Security.”
One solution is to wait until full retirement age to claim Social Security. There is no penalty for working while taking benefits after your full retirement age, regardless of how much income you earn.
3. Not checking your earnings record
The amount of your retirement benefit is based on your top 35 years of earnings. So, if there’s an error in your Social Security earnings record, the amount of your monthly check could suffer for it.
For example, if an employer fails to correctly report your earnings for even one year, your monthly benefit upon retiring could be around $100 less, according to the Social Security Administration (SSA). That amounts to a loss of tens of thousands of dollars over the course of your retirement.
While employers are responsible for reporting your earnings, you are responsible for checking your earnings record, as only you can confirm the information is accurate.
To review your earnings record, log into your mySocialSecurity account, or first create an account if you have yet to do so.
You’ll want to check each year. The SSA explains:
“Sooner is definitely better when it comes to identifying and reporting problems with your earnings record. As time passes, you may no longer have past tax documents and some employers may no longer be in business or able to provide past payroll information.”