Whether you're counting on Social Security to fund most of your retirement income or supplement your income, you want to make sure you get all of the money you're entitled to. However, with so many ways to claim benefits — especially if you're married or used to be married — small mistakes could end up costing you a lot of money over the rest of your life.
Click through to learn which Social Security mistakes to avoid so you don't end up paying for them in retirement.
The Mistake: Not Checking Your Earnings Record
Even if you're decades away from claiming Social Security, you could be making a big mistake if you don't keep track of your yearly earnings. Check your Social Security earnings record each year to make sure your income has been properly credited. The amount of Social Security benefits you receive depends on your earnings record, so if that record is incorrect, you might not receive the benefits you're entitled to.
Errors can occur for a variety of reasons, including an employer reporting an incorrect amount of earnings or your earnings not showing up because you got married or divorced and your name change has not been processed correctly.
What to Do: Check Your Social Security Statement While Working
To avoid losing money due to errors in your earnings record, check your statement annually. If you notice errors, gather proof of your earnings to send to the Social Security Administration, such as your W-2 or pay stubs. Once the Social Security Administration has verified your claim, it will correct your record.
It's much easier to prove an error that happened the previous year, when you still have your records handy, than it is for 10, 20 or more years ago because you probably don't have a paper trail going back that far.
The Mistake: Not Working Long Enough
To qualify for Social Security retirement benefits, you need at least 40 work credits. You can earn up to four credits each year based on your earnings. For 2017, you earn one credit for every $1,300 of earnings subject to Social Security and Medicare taxes.
In addition, your benefits are calculated based on the average of your 35 highest-earning years, adjusted for inflation. If you have less than 35 years of earnings, $0 will be averaged in for each year you don't have earnings.
What to Do: Do the Math Before Retiring
As you're approaching retirement, check your earnings statement first to make sure you have enough credits to qualify for Social Security. If you don't already have 35 years of earnings, consider whether working an additional year or two could help boost your Social Security benefits.
For example, if you worked a first career where you weren't covered by Social Security, an extra year or two of working could ensure you qualify for Social Security benefits or boost your monthly benefit amount.
The Mistake: Taking Social Security Too Early
You can claim Social Security benefits as soon as you turn 62 years old. However, for everyone born after 1959, the maximum reduction for claiming benefits at age 62 is 30 percent. The lower benefits are permanent: Your benefits won't go up once you reach full retirement age.
What to Do: Wait Longer Before Claiming Benefits
As much as you might like to quit your job the day you're eligible for Social Security, that might not be the best move financially. If you're in good health and expect to live a long retirement, waiting to maximize your benefits could be crucial in your later years.
If you can wait past full retirement age, your benefits could increase by as much as 8 percent per year you wait — up to a maximum of age 70.
The Mistake: Waiting Too Long to Claim Benefits
Even though the monthly benefit goes up each month you wait to claim your benefits, that doesn't mean it's always best to wait as long as possible. If you live to the average life expectancy, theoretically it won't matter whether you claim benefits early or late. That's because the amount of the benefit reduction for claiming early and increase in benefit for delaying your claims will even out.
But very few people are precisely average. If you're in poor health, claiming early could result in more benefits over the rest of your life. In addition, if you have cash flow trouble, an infusion of monthly benefit checks at a younger age could help you pay off debt and ultimately save money in the long run.
What to Do: Consider Your Situation Before Taking Benefits
Don't assume that waiting until age 70 is best in your situation. Instead, run the numbers yourself, or work with a financial advisor, and consider your unique circumstances.
For example, if you have health issues and don't expect to live until 75, much less 80 or older, you'll receive more in total benefits if you claim them earlier. And regardless of when you decide to claim your Social Security benefits, make sure you sign up for Medicare at age 65.
Signing Up for Social Security? Ask Yourself These 10 Questions First
The Mistake: Only Considering Your Own Benefits
If you simply file for the Social Security benefits you're entitled to based on your earnings record, you could be missing out on a larger benefit. This is especially important if you don't have enough work credits to qualify based on your own earnings record.
For example, if you were a stay-at-home parent while your spouse worked, you might not have earned the 40 work credits, or your benefit might not be very big. However, you could still qualify for Social Security benefits under your spouse's work record.
What to Do: Consider Your Spouse’s Earnings Records You Could Qualify Under
Check to see how much you would be eligible to receive under your spouse's work record before deciding how to claim benefits.
If you're divorced, you could also claim benefits under your ex-spouse's earnings record if the marriage lasted at least 10 years, you are age 62 or older, you are unmarried, your ex-spouse is eligible to receive Social Security retirement and disability benefits, and your benefit from your own work is less than what you would receive under your ex's earnings record.
The Mistake: Not Coordinating Benefits With Your Spouse
If you're married and you and your spouse each look at your benefits in a vacuum, you could be missing out on strategies to maximize your combined retirement benefits.
For example, if your spouse plans to claim benefits based on your Social Security earnings record, the spouse won't receive any extra credit for delaying claiming benefits beyond full retirement age.
What to Do: Coordinate Your Claiming Strategies
When you and your spouse work together on your Social Security plan, you can make sure you're maximizing your combined retirement benefits.
For example, a low-earning spouse might start claiming benefits based on the high-earning spouse's income at full retirement age, while the higher earning spouse delays benefits to earn additional delayed retirement credits. This can be tricky, so hiring a financial advisor is worth the cost.
The Mistake: Not Planning for Taxes on Social Security Benefits
Up to 85 percent of your Social Security benefits could be subject to federal income taxes if you earn substantial outside income such as wages or dividends. The percentage of your benefits that are subject to income taxes depends on your combined income (which equals your adjusted gross income), any non-taxable interest income and one-half of your Social Security benefits.
If you file as an individual and your combined income is between $25,000 and $34,000, up to half of your benefits can be taxed. If your combined income is over $34,000, up to 85 percent of your benefits can be taxed. For joint filers, if your combined income is between $32,000 and $44,000, half of your benefits might be taxed. If it's over $44,000, up to 85 percent might be taxed.
What to Do: Proactively Plan for Taxes
Engaging in tax planning can help ensure you aren't paying the IRS any more of your Social Security benefits than you have to.
For example, if you're planning to donate money to charity, consider a qualified charitable distribution to satisfy your required minimum distribution from an IRA rather than using other funds. That way, the distribution doesn't add to your taxable income and might make more of your Social Security benefits count as taxable income.
The Mistake: Ignoring Work Rules for Early Benefits
If you plan to continue working after you start collecting Social Security benefits, you could find yourself coming up short financially.
In the years before you reach full retirement age, your Social Security benefit is reduced by $1 for every $2 you earn over the annual limit. In 2018, the annual limit is $17,040.
In the year you reach full retirement age, your Social Security benefit is reduced by $1 for every $3 you earn in excess of the annual limit. For 2018, the annual limit in this case is $45,360.
What to Do: Budget for Early Retirement
If you rely on early Social Security benefits to supplement your working income in the years before you reach full retirement age, make sure you account for the rules for working while earning Social Security. It's important to be aware of the potential reduction in your benefits.
Once you reach full retirement age, there's no further reduction. Ultimately, you'll receive a higher benefit after full retirement age for the reductions in benefits from working too much prior to full retirement age. Without proper planning, however, you could face short-term cash-flow problems.