6 Social Security Mistakes You Should AVOID. Here’s How!

A lot of people think Social Security advice is one-size-fits-all. But even one mistake can cost you thousands of dollars over the course of retirement. It’s important to have a Social Security strategy built around your situation, not just general advice. Here are five of the most common Social Security mistakes people make.

1. Claiming Social Security Too Early

This is probably the most common Social Security mistake people make. A lot of times, Social Security paperwork comes in the mail, and people feel like they need the money right away. So they make a phone call, check a few boxes, and start receiving income. But that may not always be the right decision. By claiming early, you can reduce your benefit by as much as 30% from your primary insurance amount.

Tip: Your primary insurance amount is the benefit you receive at full retirement age, which is usually somewhere between 66 and 67, depending on when you were born.

What This Can Look Like in Real Life

For example, if your full retirement age benefit is $3,500 per month, claiming at 62 could reduce it to around $2,450. But waiting until age 70 could increase it to roughly $4,340 through delayed retirement credits. That difference matters, especially because people are living longer. When you look at family history, medical advances, and current health technology, it’s very possible that someone today could live well into their 90s.

In many cases, the break-even point for waiting happens around age 77. After that, the higher monthly benefit can continue paying off for many years. And if you’re married, survivor benefits make these decisions even more important.

2. Ignoring the Earnings Test

Another mistake people make is claiming Social Security early without considering the Retirement Earnings Test. If your full retirement age is 67 and you claim benefits before that while still working, it’s possible that Social Security could withhold part or even all of your benefit. Before full retirement age, the earnings test limit is roughly $23,000 per year. In the year you turn full retirement age, that limit is closer to $62,000, though it is adjusted for inflation. For every $2 earned above that amount, Social Security reduces your benefit by $1.

When Social Security May Demand Money Back

Here’s where things can get messy. If the paperwork isn’t completed correctly and Social Security starts sending benefits while you’re still working, they will eventually realize it. And when they do, they may ask you to repay those benefits. Having to mail in a check is one Social Security mistake you want to avoid at all costs. The good news is that if you catch the mistake within the first 12 months, you may be able to reverse it. You can file Form SSA-521, a request to withdraw your application, repay the benefits you received, and essentially make it as if the filing never happened.

SEE ALSO: 4 Retirement Traps No One Tells You About

3. Not Coordinating Social Security With Your Spouse

Another common Social Security mistake is not coordinating benefits with your spouse. If you’re married and both spouses have work histories, it’s possible that you both qualify for your own Social Security benefits. But the timing of each spouse’s filing can make a major difference.

Here’s the important part. No one from the Social Security Administration is going to come back five years later and tell you that you should have filed differently. It’s up to you and your adviser to figure out what strategy makes the most sense for your financial plan.

Real Case Study Example

One example we worked through involved a couple named Sally and Joe. Joe was 15 years older than Sally, and he waited until age 70 to maximize his benefit. The question became: when should Sally file? In this case, it actually made sense for Sally to file at 62 as soon as she became eligible. Why? Because survivor benefits mattered more than maximizing her own delayed retirement credits.

The surviving spouse receives 100% of whichever benefit is higher. That means that eventually, one of those benefits will go away completely. If Sally waited until age 70, she would receive only about 1 year of her own benefit before switching to Joe’s survivor benefit after he passed away. But by filing at 62, she was able to receive eight years of benefits before switching to the survivor benefit. When we compared the two strategies, the difference in cumulative lifetime benefits was roughly $270,000.

4. Misunderstanding Deemed Filing Rules

This is one of the more technical Social Security rules, but it still catches people off guard. Years ago, there were strategies called “file and suspend” or “restricted application.” These strategies allowed someone to claim one benefit while another continued to grow.

But the rules changed. If you were born after 1954, those strategies are generally no longer available. Under deemed filing rules, when you file for Social Security, you’re typically considered to be filing for all benefits you’re eligible for at the same time. In simple terms, you usually receive the higher of the available benefits. That means you can no longer claim a smaller spousal benefit temporarily while allowing your own retirement benefit to continue growing until age 70. A lot of people still assume this strategy exists. But for most retirees today, it does not.

SEE ALSO: How to Reduce Required Minimum Distributions (RMDs) and Taxes

5. Not Understanding Survivor Benefits

This is another area where people often make costly mistakes. Most people understand that claiming Social Security early permanently reduces their benefit. But survivor benefits work differently. And that creates planning opportunities. If you qualify for survivor benefits, you may be able to start receiving them as early as age 60. At the same time, your own retirement benefit can continue growing in the background. That’s the key point many people miss. Your survivor benefit and your own retirement benefit run on two separate tracks. Taking your survivor benefit early does not reduce your own retirement benefit’s ability to grow.

For example, let’s say your survivor benefit at age 60 is $1,200 per month. You could begin taking that survivor benefit at 60 while allowing your own retirement benefit to continue earning delayed retirement credits all the way until age 70. Then, at 70, you could switch over to your own maximized retirement benefit. That means you could receive survivor income for years while still eventually qualifying for 124% of your primary insurance amount later.

6. Assuming Social Security Advice Is One-Size-Fits-All

One of the biggest mistakes people make is assuming there’s one “correct” age or strategy for claiming Social Security. What works well for one person may be the wrong move for someone else.

Social Security decisions depend on things like:

• Your health
• Marital status
• Income
• Life expectancy
• Survivor benefits
• Whether you’re still working

Because many Social Security decisions are difficult or impossible to reverse, it’s important to build a strategy around your specific situation instead of relying on general advice.

A Better Way to Approach Social Security

Social Security decisions are more complicated than most people realize. Claiming too early, ignoring the earnings test, misunderstanding survivor benefits, or failing to coordinate with your spouse can cost you thousands of dollars over the course of retirement.

At Paces Ferry Wealth Advisors, we help people create Social Security strategies that align with their retirement goals, income needs, family dynamics, and long-term financial plan. Contact Paces Ferry Wealth Advisors today to speak with a wealth advisor in Atlanta, Georgia.

Paces Ferry Wealth Advisors, LLC is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”). This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.