One of the very best ways to generate the most guaranteed lifetime income that keeps up with inflation is Social Security. Still, most retirees have yet to learn how to select the best time to take benefits and risk outliving their savings.
Knowing all the rules and deadlines for Social Security is so important that I have become a Certified Social Security Claiming Specialist (CSSCS).
As I explore retirement income planning, each of us has a unique situation. This makes navigating Social Security benefits complex, and making the wrong choices can have long-term financial consequences. Here are four of the most significant mistakes you want to avoid when claiming Social Security.
1. Claiming Benefits Too Early
One of the most common mistakes is claiming Social Security benefits when eligible at age 62. While it might be tempting to start receiving money as early as possible, doing so can significantly reduce your monthly benefits.
Your benefit amount increases each year you delay claiming up to age 70. For example, if your full retirement age is 66, claiming at 62 reduces your benefits by about 25%. Think about it. This means taking benefits early can lock in a permanent pay cut, not just to yourself, but as a survivor benefit to your spouse. And waiting until age 70 can mean a 76% larger benefit.
Let’s look at the numbers: Let’s assume your full retirement benefit at age 66 is $2000/month, and your benefit at age 62 is $1500/month. Waiting until age 70 would give you $2640/month, a 76% increase from age 62.
If you are a couple with similar benefits, waiting until 70 could mean an extra $27,360 per year in income. Evaluating your financial needs and health before making this decision is important. And don’t forget that Social Security receives cost of living increases (COLA) that can add up over time!
2. Not Understanding the Impact of Work on Benefits
If you plan to work while receiving Social Security benefits before reaching your full retirement age, be aware that your benefits might be reduced due to the Earnings Test. In 2024, for instance, $1 in benefits will be withheld for every $2 you earn above $22,320.
So often, retirees take benefits as early as possible but then end up working, either because they need the money or because they get bored and want to try something new. It’s crucial to understand how your earnings might affect your benefits and plan accordingly.
3. Overlooking Spousal and Survivor Benefits
Many people need to take full advantage of spousal and survivor benefits.
For spousal benefits: if you’re married, you might be entitled to up to 50% of your spouse’s full benefit, even if you never worked. This also applies to divorced individuals, provided the marriage lasted at least ten years, and you are currently unmarried.
For survivor benefits, a widowed spouse may be eligible to receive 100% of the deceased spouse’s benefit. This can include a divorced spouse who has been married for 10 years, is at least 60, and has not remarried before age 60.
When choosing what age to claim benefits, remember when one spouse dies, the survivor receives the higher of the two benefits. Claiming benefits early can severely impact the surviving spouse.
Let me share a few stats that may surprise you and why Social Security survivor benefits are so important:
- 80% of men die married, yet 80% of women die single*
- 50% of woman widowed after age 65 will outlive their husband by 15 years*
- 36.5% of widowed women over the age of 65 depend on Social Security to provide more than 90% of their income**
- The percentage of 65-year-old married women who live in poverty climbs nearly. Five-fold once they are widowed**
Source: *Kiplinger’s, “Widow’s move forward on their own – But not alone,”, Francis, 2021, **Schwartz Center for Economic Policy and Analysis, “Old Age Poverty: Single Woman, Widows and a Lack of Retirement
Social Security is one of the best tools for providing survivor income to a spouse. When we visit retirement and nursing homes, we know who most residents are.
4. Ignoring the Impact of Longevity
The fear of dying has been replaced with the fear of living too long. Claiming benefits early might be beneficial in the short term but can lead to significantly lower monthly payments over a longer period. I have met many couples whose parents lived independently in their late 80s and 90s. A longer life means you’ll need more resources, and higher monthly benefits can help maintain your standard of living.
Making informed decisions about Social Security is essential for retirement. Social Security is the only program guaranteed for life, continues for the surviving spouse’s life, is adjusted for inflation, is tax efficient, and is backed by a government promise. Avoiding these common mistakes can help maximize your benefits and maintain a comfortable lifestyle.
If you have Social Security questions and want to learn how to optimize your income while using the least amount of assets and paying the least taxes, schedule a complimentary Social Security Optimization Review with me by visiting my online calendar. Or, feel free to share the article with a friend!
Katana Abbott, CFP®, is a Midlife Millionaires® Coach, Certified Social Security Claiming Specialist, and the host of Smart Women Talk. For over 35 years, Katana has helped Baby Boomers plan for retirement, including creating lifetime income, optimizing their Social Security benefits, launching an e