7 ways to mess up your Social Security benefits

Social Security is a program designed to provide income over a claimant’s lifetime starting at retirement age, and soon-to-be retirees have many smart strategies to max out their lifetime payout from the program. But they have quite a few ways to mess up their retirement benefits, too, from basics such as not following the rules or not properly planning to more complex screw-ups such as not exploring how to optimize their benefit.

Taking a cue from the late legendary investor Charlie Munger, sometimes the best way to succeed is simply to avoid doing things that are sure to cause failure. That same wisdom can be applied to claiming your Social Security benefit.

By avoiding the following pitfalls, you have a good chance at increasing your Social Security check or at least not hurting your payout too much.

(Working with a financial advisor can help you create a retirement plan to best take advantage of what Social Security offers.)

Here are seven ways you can really mess up your Social Security benefits.

1. Not estimating your benefit before you retire

One of the most basic things to do when planning for Social Security benefits is to estimate how much you’re likely to receive from the program before you file for benefits. If you don’t know the size of your check, you can’t make a sensible decision about when to take your benefit.

It’s easy to check your estimated payout right on the Social Security website, and you just need to sign up for an account to do so. Plus, you can also verify your earnings history to be sure that Social Security has the correct amounts so that you receive all you’re entitled to.

This Bankrate Social Security calculator can help you figure out your benefit.

2. Filing too early

“Following the herd about misconceptions and fear-mongering about Social Security ‘running out of money’ creates fear that people will lose their Social Security benefit, so a lot of people elect to receive Social Security early at 62,” says Nick Strain, senior wealth advisor at Halbert Hargrove.

But filing for benefits at 62 – when you’re first eligible to do so – permanently hurts your payout.

“Starting Social Security at age 62 results in a 30 percent decrease from your full retirement age benefit,” says Strain.

Those who file later can receive substantial annual increases and enjoy a permanently higher benefit for as long as they live.

“Social Security will increase 6 percent a year from age 62 to your full retirement age and then 8 percent a year from full retirement age to age 70,” says Strain.

That’s a huge benefit for waiting, and you should calculate when it makes the most sense for you to claim your benefit.

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3. Not factoring in longer lifespans

Closely related to filing too early is the issue of not factoring in longer lifespans. People are living longer than ever before, and your decision when to take Social Security should reflect that.

Strain says that the wrong decision can have a “devastating impact on people who are living longer lives.”

“For a married couple, one spouse is expected to live past 85 years old, and if they are non-smokers and in excellent health, studies show… there is a 90 percent probability at least one spouse will live past 85 and a 73 percent probability a healthy spouse will live past 90,” says Strain.

If you file too early for benefits, not only will you receive a permanently lower payout, but you’ll also put further strain on your other retirement resources such as a 401(k) plan or IRA.

4. Not working long enough

Social Security determines your benefit based on your 35 highest-earning years. If you don’t have 35 years’ worth of earnings, the calculation factors in a zero for each missing year. So missing a year of earnings can really hurt your total payout. And if you haven’t worked at least 40 quarters, or 10 years, you won’t be eligible to claim Social Security at all.

The straightforward solution here is to be sure to hit the minimums. Get that full 35 years of earnings on your record, and later years – when you’re likely to earn more money – may end up being more valuable than earlier work years when you earned less. Taking this fundamental approach can help you earn a better-than-average benefit check.

5. Taking advice from Social Security representatives

Social Security representatives can tell you what you’re able to do with the program, but don’t rely on them to tell you what you should do. Experts routinely advise potential filers to make their own calculations either with a financial advisor or using a software package.

You’ll want to understand your own financial circumstances to make the best decision for you, and a smart advisor can help you do that. Bankrate offers a financial advisor matching tool to match clients with advisors in minutes.

6. Not exploring different ways to claim your benefits

Social Security offers many different ways to claim your benefit, including offering spousal benefits and survivors’ benefits. Even ex-spouses can claim benefits based on their former spouse’s record. So it’s vital to explore the best path for claiming benefits especially in conjunction with your partner. You may end up with tens of thousands of dollars more.

When working with couples, Strain says: “We want to take both of their Social Security benefits into account to create retirement income and look at multiple scenarios and consider different start times.”

By looking at various scenarios and considering each partners’ longevity, advisors can craft a strategy that helps maximize your lifetime income, especially if one partner passes away early.

“When I meet with a married couple to discuss Social Security, I want to be clear that we want to try to plan for both increased lifespans that are more common today, but we also want to plan for worst-case scenarios if one of them passes away unexpectedly,” says Strain.

7. Earning too much while filing for benefits

If you file for benefits before full retirement age and keep on working, you may end up drastically reducing your Social Security payout.

“If you make more than $22,320 a year in wages and start to receive Social Security benefits early, Social Security will deduct $1 from your benefit payments for every $2 of earnings you earn above the annual limit,” says Strain.

But that’s from earned income, not other key types of retirement income, says the advisor.

“Pensions, annuities, investment income, interest, veteran benefits or government and military benefits do not count against you,” says Strain.

Bottom line

Understanding how the Social Security program works is vital to helping you get the most out of it. Without question, it’s a complex system, but working with a financial advisor can help you figure out what your priorities are and help you increase your monthly Social Security benefit.