Social Security benefits are a cornerstone of financial stability for millions of Americans, especially retirees. Yet, every year, countless individuals miss out on thousands of dollars they’re entitled to simply because of misunderstandings, errors, or a lack of planning.
The Social Security Administration found that over $20 billion had been spent as overpayments in the past few years. Most of the first disability applications are turned down because of avoidable errors. Mistakes in planning can seriously affect your funds when you retire.
To protect your future income, you must discover the typical errors that might keep you from getting your Social Security and learn how to handle them. Below, we break down the top reasons people lose benefits and provide actionable steps to ensure you don’t fall into the same traps.
Not Working Enough Years
To qualify for Social Security benefits, you must earn 40 credits, typically about 10 years of work. Employers use payroll taxes to accumulate these credits for you, so you lose your right to benefits if you don’t get any. Let’s say you haven’t worked in a long time or have a work history that isn’t steady.
If that applies to you, you might be turned down for benefits. Remember to review your eligibility on your mySocialSecurity page. This tool allows you to track your credits and ensure you’re on track to meet the minimum work requirements needed to secure your benefits.
Earning Too Little
Social Security benefits are calculated using your highest 35 years of income. If you work fewer than 35 years, the missing years are recorded as zeroes, which can drastically reduce your average lifetime earnings and lower your benefit payouts. Receiving too little income in a few years may also hurt the retirement plan.
A difference of five years in your job history or when you didn’t earn as much may result in your monthly payments being cut by hundreds. If you have this shortfall, your retirement could be significantly impaired.
Try to put in 35 years of employment, earning a regular income, so you get the most out of your benefits. If the option is available, taking part-time jobs or freelance tasks helps fill any job gaps and raises your earnings record.
Claiming Benefits Too Early
Claiming Social Security benefits at 62, the earliest eligible age, can reduce your monthly payments by up to 30% compared to waiting until your full retirement age (FRA). Starting to collect your benefits early may be hard to resist if you’re experiencing difficulty, yet doing so will permanently lower your regular monthly amount.
SSA estimates that those who take their benefits before their FRA will have their monthly pay cut by about 6% early each year. Over a 20-year retirement, this reduction can amount to tens of thousands of dollars.
Examine your savings, health, and future earning capabilities before you decide on benefits. If you delay gaining benefits until your FRA or even a little later, up to age 70, your payments could rise sharply.
Not Knowing Your Full Retirement Age
Your full retirement age (FRA) is when you’re eligible to receive 100% of your Social Security benefits. This age varies depending on your birth year, ranging from 66 to 67 for most people nearing retirement. Should you claim your benefits before your FRA, your monthly check will be smaller, but if you wait until after your FRA, your payout can increase by up to 8% each year.
For persons born in or after 1960, the FRA is 67, though those born before 1960 often have an FRA of 66. Failing to understand your FRA can cause you to make poor financial choices. Check your FRA and consider it when you create your retirement plan. Knowing this age can help you strategize and increase your lifetime benefits.
Divorce Complications
Divorce can complicate Social Security benefits, especially if you’re unaware of the rules regarding your eligibility to claim benefits based on your ex-spouse’s work history. Should your marriage last for at least 10 years, it is possible to claim benefits using your Social Security number, regardless of remarriage.
Many people don’t take advantage of this benefit because they are unaware or have false information. You must be single and over 62 years of age to qualify. Your benefits will not affect your ex-spouse’s benefits, making this a valuable option for divorced individuals.
If you have been divorced for months or years, contact the SSA for more information. People often forget how powerful divorce can be for their finances after retirement.
Not Coordinating Spousal Benefits
Spouses have the opportunity to coordinate benefits to maximize their household income during retirement, but failing to plan can lead to missed opportunities. Depending on which is higher, spouses may claim benefits with either their own earnings or up to 50% of their spouse’s benefits.
Many couples do not achieve the full benefits of these organizations without a well-defined strategy. In some cases, the spouse who makes more money can avoid claiming for several more years to receive delayed retirement credits, while the spouse with a lower income can claim sooner to help the household earn extra money.
With this technique, your payments may grow significantly in the long run. Get input from a financial advisor to design a way to organize spousal benefits that help your family meet its goals.
Not Understanding Survivor Benefits
Widows can receive survivor benefits, which allow them to collect a portion of their mate’s Social Security payments. Still, people often pass up chances because they aren’t sure about the rules or when to apply. If you claim your benefit at precisely the right age, you may get the full amount due for your spouse, but most survivors claim beforehand and lose valuable benefits.
According to the SSA, more than 5 million people get monthly benefits as survivors, but many don’t claim their share because they lack the necessary information.
Contact the SSA promptly after a spouse’s passing to fully understand your rights and the best time to claim survivor benefits. Reviewing your options with a financial advisor to maximize your long-term financial stability is also wise.
Failing to Review Your Earnings Record
Mistakes in recording your earnings with the Social Security Administration can seriously lower how much you are paid in retirement. With incorrect or missing earnings, your benefits may be less each month than you deserve. The SSA estimates a 3% error rate in earnings records, which means reviewing your records is essential to ensure accuracy.
Things that start as minor errors can grow and cause significant problems later. Check your Social Security record once every year using your mySocialSecurity account. If you notice any issues, report them immediately to avoid mistakes with your benefits. Every extra moment you have to find an error lets you solve it with greater ease.
Working While Receiving Benefits
Should you collect your benefits before FRA and keep a job, anything you earn beyond the SSA earnings limit may cause your benefits to go down. Until you reach your full retirement age, your Social Security benefits drop when you earn anything extra, but they don’t drop after that.
The earnings limit for this year is $23,400. If your annual salary exceeds that limit, your benefits will be reduced by half for each dollar over. However, the SSA recalculates your benefits at FRA to account for withheld amounts so you don’t lose them permanently.
Consider your retirement plans so you don’t lose income from too much work. Consider delaying benefits until you stop working or reduce your hours if your income exceeds the earnings limit.
Owing Money to the Government
The government can garnish your Social Security benefits to recover unpaid taxes, federal debts, and student loans. This could leave you with less income than expected during retirement, potentially affecting your quality of life. Federal debts are an exception to the rule that protects benefits from most creditors.
Addressing these debts in advance is essential. Settle all federal debts that exist before requesting Social Security payments. If you actively manage your financial obligations, you will prevent unexpected changes and secure your complete benefits.
Living Abroad
Living outside the United States while collecting benefits can be more complicated than many realize. Social Security payments for U.S. citizens are available in most countries, but some nations restrict access, and payments can stop under specific conditions. Social Security payments are unavailable to U.S. citizens in countries like North Korea or Cuba.
Restrictions for benefit payments may apply to non-U.S. citizens based on their home country or the country they live in. Check the SSA’s Payments Abroad Tool to learn about benefit eligibility rules for your country of residence. Research the relevant regulations before moving to maintain your eligibility for expected payments.
Simply Not Applying
Various reasons, such as fear and misinformation, prevent some people from applying for Social Security benefits. Benefits are not automatically granted; you must actively apply to start receiving them. If you don’t apply for Social Security benefits, you face lost payments and income, significantly impacting those whose retirement income depends mainly on Social Security.
The AARP reports that 2 million eligible seniors have failed to claim their Social Security benefits, which results in billions of dollars remaining unclaimed. Don’t leave money on the table. Apply through the SSA website, by phone, or at your local Social Security office as soon as you become eligible.
The process is straightforward, and resources are available to help you navigate any questions or concerns.
Understanding Social Security benefits requires attention to detail and proactive planning. The more you educate yourself, the better you can maximize your financial security in retirement. Start by reviewing your earnings record, planning your retirement age, and seeking professional advice when necessary. Don’t wait until it’s too late; prepare today for a more stable tomorrow.
Disclaimer – The Finance key does not provide and does not intend to provide financial, investment, tax, or legal advice. Information contained in this article is for informational and educational purposes only. This list is solely the author’s opinion based on research and publicly available information. The inclusion of links to third-party content is not an endorsement by The Finance Key of such content or services. Please do your due diligence and use your discretion.
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