5 Social Security Mistakes That Cost Middle-Class Retirees $50,000

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Social Security is meant to be a financial safety net for retirees who can no longer work. These payments increase each year due to inflation, helping retirees adjust to higher living costs. However, not everyone has access to a financial advisor who can tell you when to take out Social Security and what mistakes you should avoid along the way.

If you aren’t careful, you can lose out on a lot of potential Social Security benefits. These are some of the top mistakes middle-class retirees make that can cost them more than $50,000.

Claiming Too Early

You can start taking out Social Security the moment you turn 62, but that’s not the best move for most retirees, especially for people who live into their 80s and 90s. That’s because the earlier you take out Social Security, the lower your benefits. 

You have to wait until you turn 70 to take out Social Security and receive the maximum benefit, but you can lose up to 30% of your maximum benefit by taking it out at 62. ChatGPT estimates that you can lose $50,000 to $100,000 in Social Security income over the course of 20 years if you claim it too early.

Not Coordinating Your Other Retirement Income With Social Security

Chances are, you have been saving some money in addition to waiting for Social Security to arrive. You may have a 401(k) plan, IRA, and a portfolio. While it’s good to build a nest egg instead of relying on Social Security, you can end up with a high tax bill if you aren’t careful.

Traditional 401(k) and IRA plans tax you the moment you withdraw your money. Those withdrawals and Social Security benefits can push you to a higher tax bracket, and that means more of your money will go to the government. 

You will have to coordinate your retirement account withdrawals with your Social Security paychecks and the current tax rates. You can start with traditional retirement accounts, and when you’re getting closer to a higher tax bracket, you can withdraw from Roth retirement accounts for the rest of the year since those withdrawals aren’t taxed.

Not Coordinating With a Spouse

Married middle-class retirees shouldn’t just think about their Social Security benefits. They also have to consider what their spouse can earn from the program. If both partners take out Social Security at 62, they miss out on the elevated benefits that would have been available if they had waited until turning 70.

ChatGPT mentions that a couple can earn more if the higher-earning partner waits to take out Social Security benefits until that spouse turns 70. Then, the partner who didn’t earn as much has the option to tap into Social Security early to make ends meet.

Forgetting About Survivor Benefits

Some widows can qualify for higher Social Security benefits if they know a key rule within the Social Security program. The surviving spouse gets to keep the higher of the two benefits. For instance, a stay-at-home mom who is now a widow can receive the husband’s Social Security benefits instead of her own. 

This can become a problem if the higher earner opts to claim Social Security benefits at 62. ChatGPT mentioned that some surviving spouses can outlive their partners by 10 to 20 years. The AI model projects that forgetting about survivorship benefits can cost some widows $50,000 to $150,000 in lifetime income from Social Security, though they should double check with a financial professional to see what they could be missing out on.

Working While Collecting Social Security

Social Security is best for people who are already retired. That’s because Social Security will take some of its money back if your income is above a certain level. If you are under the full retirement age, you lose $1 in benefits for every $2 earned above $22,320. People who work after reaching their full retirement age lose $1 for every $3 earned above $59,520.

ChatGPT gave an example of a 63-year-old who receives $1,500 per month from Social Security but still earns $40,000 per year. Since the person in this example is $17,680 above the income limit, Social Security will withhold $8,840 per year (divide $17,680 by two). Do that for six years, and you’re down by more than $50,000. That doesn’t include the lost benefits that come from taking out Social Security the moment you turn 62.

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