Whether you plan to live mostly on Social Security in retirement or use those benefits to supplement your retirement plan withdrawals, it's important to get as much money out of the program as you can. But if you fall victim to these blunders, your monthly Social Security benefits may end up letting you down.
1. Not knowing your full retirement age
You're entitled to your full monthly Social Security benefit at full retirement age, or FRA. Even though you're allowed to sign up for benefits as early as age 62, claiming them even a month ahead of FRA will result in an automatic reduction.
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You might assume that your FRA is 65, because that's when Medicare eligibility begins. But actually, if you were born in 1960 or later, FRA isn't until age 67. That's why you'll need to learn your FRA before you can even think about filing for benefits. The last thing you want to do is slash your benefits accidentally due to not knowing when you can claim them in full.
2. Not understanding how benefits are calculated
Social Security uses a specific formula to calculate benefits, and it's based on your lifetime earnings. If you don't put in enough time in the labor force, you could end up with a lower benefit for life.
Your 35 highest-paid years of wages are taken into account when establishing your retirement benefit. What this means is that if you don't work a full 35 years, you'll have a $0 factored into that formula for each you're without an income. As such, if you took a career break, it could pay to extend your time in the workforce at the tail end to set yourself up for a larger benefit.
3. Not realizing you can undo an early filing you regret
You may end up claiming Social Security before FRA, whether accidentally or not, and slashing your benefits as a result. But if you recognize your mistake early on, you may be able to fix it -- if you act quickly.
You're allowed one lifetime do-over when it comes to claiming Social Security. If you file for benefits and then decide you did so too soon, you can withdraw your benefits application within a year and repay all of the money you received. Once you do those two things, you'll get an opportunity to sign up for Social Security at a later age and lock in a higher benefit in the process.
What can a higher benefit do for you?
No matter how much money you're bringing into retirement in the form of personal savings, it's still a good idea to score as high a Social Security benefit as possible. The great thing about Social Security is that it pays you for life, and a higher benefit could be your ticket to financial security as your retirement plan balance starts to dwindle.
That's why it's so important to avoid the above mistakes -- mistakes that could leave you with a lower benefit for life and a world of financial stress to grapple with during your senior years.
