Social Security serves as a key source of income for millions of retired seniors. These mistakes, however, could cause you to lose out on key benefits that would otherwise come in handy when you’re older.
1. Not knowing your full retirement age
Though your Social Security benefits are based on how much you earned during your working years, the age at which you first file for them could impact your monthly payments. That’s why it’s crucial to know your full retirement age, which is the age at which you’re entitled to your monthly benefits in full. That age is a function of your year of birth, as follows:
DATA SOURCE: SOCIAL SECURITY ADMINISTRATION.
Unfortunately, many folks don’t bother to learn what their full retirement age is, so they wind up filing for benefits prematurely and lowering them in the process. In fact, a survey released by Fidelity last year revealed that nearly 75% of Americans don’t know their full retirement age.
Of course, you’re allowed to file for Social Security as early as age 62, and doing so actually makes sense in some scenarios despite the hit in monthly payments it translates into. But if you’re going to file early, it should be because you have an actual reason, and not because you never bothered to read up on your full retirement age and the advantages of waiting until then.
2. Not working a full 35 years
Your Social Security benefits are based on your 35 highest years of earnings on record.
On the flip side, if you work less than 35 years during your career, you’ll have a glaring $0 factored in for each year in which you don’t have earnings on file. And if you get too many of those $0s, you’ll end up with a lower monthly benefit for life.
The solution? Work a bit longer to replace some of those $0s with actual earnings.
This is an especially helpful move if your income rises substantially over time, and you’re able to replace a $0 or two with, say, a $150,000 salary.
3. Not realizing there’s a do-over option
As stated above, it sometimes makes sense to file for Social Security ahead of full retirement age, even though that translates into a reduction in benefits. If, for example, you lose your job and need money at age 64, you’re better off taking benefits early than racking up debt to pay your living expenses.
But what happens if you become reemployed later that same year and no longer need your benefits? Suddenly, you risk collecting a lower monthly payment for life — that is, if you don’t withdraw your application for benefits and start over.
Unfortunately, many people don’t realize that Social Security offers a do-over option for those who regret filing when they do or come to no longer need their money right away. To capitalize on that second chance, you must withdraw your application within a year of filing and then pay all of the money you collected in benefits back to the Social Security Administration. But if you’re able to do both things, you can avoid locking yourself into a lower monthly benefit for the rest of your days.
There’s a good chance Social Security will constitute a substantial chunk of your senior income, so if you want to get the most money possible out of the program, be smart about filing for benefits and know what mistakes to avoid. In fact, it pays to keep reading up on how Social Security works, because the more you educate yourself, the fewer dangerous blunders you stand to make.
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Source: The Motley Fool