Financial Planners Reveal the #1 Mistake Retirees Make With Social Security
Social Security is the bedrock of many retirement budgets, and when and how you claim can change your monthly cash flow for life. Retirement experts see people make the same avoidable mistakes repeatedly. Get it wrong, and you can forfeit tens of thousands of dollars. If you’re optimizing your claim, you can stretch your retirement dollars further with every check.
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Claiming too early without testing taxes and inflation
Tax strategist J.R. Faris calls early filing at 62 “the classic unforced error,” because it locks in a smaller payment and often ignores taxes and longevity. “The greatest mistake … is claiming too early without evaluating the effects that taxes and future inflation have on lifetime income,” he says.
Many people could add six figures to their lifetime benefits by waiting when health and cash flow allow. If your full retirement age (FRA) is 67, filing at 62 cuts your check up to 30% because the Social Security Administration reduces benefits 5/9 of one percent per month for 36 months, then 5/12 of one percent thereafter.
A $2,000 FRA benefit becomes around $1,400 per month, meaning you lose $600 per month for life. Even over just five years, that’s a loss of $36,000 before cost-of-living adjustments (COLAs).
Faris recommends starting with a simple longevity and tax model. If you can bridge the gap with savings or work part-time, explore waiting. After FRA, every month you delay to age 70 earns delayed retirement credits (DRCs) of about 8% per year. But remember the DRCs stop after 70, so there’s no point waiting any longer.
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Letting bankruptcy headlines trigger a panic claim
Tom Buckingham, chief finance officer for Nassau Financial Group, reminds us that the program isn’t designed to go away. Even if trust fund reserves are depleted, ongoing payroll taxes can still fund a significant portion of benefits.
The latest Trustees’ outlook projects the Old-Age and Survivors Insurance (OASI) trust fund will pay 100% of scheduled benefits until 2033. After that, if Congress did nothing, continuing payroll taxes would still cover around 77% of scheduled benefits. So yes, if no action is taken, there would be a cut, but not a collapse as the fear-mongering headlines would have you believe. Filing early out of fear can lock in a permanent reduction that you can’t undo.
Buckingham says that you shouldn’t let headlines derail your plan. If health and cash flow allow, wait for FRA. If you must file early, understand the permanent trade-off and coordinate with the rest of your income sources.
Not coordinating the higher earner’s claim
“The higher earner delaying can be the most valuable move for a couple. It raises today’s income potential and meaningfully improves the survivor’s check,” says Chad Gammon of Custom Fit Financial.
The key is coordination. Prioritize delaying the higher earner’s benefit, budget and health permitting, to lift the long-term household base by locking in a larger survivor check. Crucially, a widow/er’s benefit is based on what the higher earner was actually receiving, and it includes any delayed retirement credits earned before death. So coordinating around the higher earner protects the survivor for the remainder of their life.
Gammon recommends building a couple’s plan. Let the lower earner provide near-term cash flow if needed, while the higher earner delays to maximize the long-term survivor benefit.
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Ignoring Medicare choices and letting premiums eat your raise
Health-insurance expert Whitney Stidom of eHealth Inc says that a key mistake she sees that quickly shrinks net Social Security is not optimizing Medicare. “Healthcare expenses are among the biggest financial concerns … yet 76% either underestimate or don’t know their costs”, she says. Shopping plans during enrollment can save on average $1,800 per year in total health costs, including about $800 from prescription drug savings.
Part B premiums and prescription costs often come out of your check, so picking a poor-fit plan effectively reduces your Social Security. Stidom recommends comparing plans every year, looking at chronic-condition special needs plans (C-SNPs) if eligible, and getting unbiased help.
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Forgetting benefits can be taxed and failing to plan withdrawals
Attorney Michael Liner says many retirees are shocked when their benefits are taxed. “Depending on your total income, up to 85% of your Social Security benefits can be taxable at the federal level,” he notes. It hinges on combined income, which is adjusted gross income (AGI) plus tax-exempt interest, and half of your Social Security benefit.
If you file as an individual, the income cap is $34,000, and if you’re married filing jointly, it’s $44,000. If your combined income exceeds these amounts, up to 85% of your benefits are included in taxable income. Liner explains that the smart move is to sequence withdrawals to manage brackets and consider modest Roth conversions before you claim.
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Bottom line
With every expert observation, the common theme is some variation of rushing and failing to plan. The most frequent examples are filing early out of fear, without a plan for taxes, Medicare, or spousal coordination. The best advice is to slow down, run multiple scenarios, and pressure-test your strategy with a pro before you lock it in.
While you fine-tune your timing, use side moves to keep more of every dollar. Cut fixed bills, compare Medicare plans, and look for ways to maximize your retirement savings so delaying is actually comfortable.
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