Social Security: Don’t Let Small Mistakes Cost You Big

Social Security: Don’t Let Small Mistakes Cost You Big

Deciding when to start collecting Social Security is one of the most important money choices many people make for retirement. Yet, many folks are still figuring it out without all the facts or a clear plan. Lawrence Sprung, author of “Financial Planning Made Personal,” explains that understanding the rules can make a big difference in how much money you receive over your lifetime.

Know Your Full Retirement Age

One of the biggest mistakes people make is not knowing their actual full retirement age. Many still think it’s 65, but for most people, it’s now 66 or 67. This age is key because it determines the amount of your Social Security benefit. Claiming too early means getting less money each month, while waiting can mean a bigger check.

Where to Find Your Benefit Information

To figure out what you’re entitled to, Sprung recommends visiting the official Social Security website, ssa.gov. There, you can see the benefits available to you based on your work history. You can start collecting benefits as early as age 62, but this results in a smaller monthly payment. Your full retirement age (66 or 67) gives you your maximum benefit amount. However, your benefit continues to grow even after your full retirement age, up to age 70. For every year you delay claiming Social Security between age 62 and 70, your benefit increases by about 8%. This yearly increase adds up significantly over time, making the decision of when to start collecting crucial.

A Strategy for You and Your Spouse

Social Security often makes up the largest part of an American’s retirement income. That’s why having a strategy is so important. Beyond just timing, consider how your decision affects your spouse or partner. Benefits are often intertwined. For example, if one spouse stayed home to raise children and didn’t earn a significant Social Security record, their benefit will be based on their spouse’s earnings. If the higher earner delays collecting their benefit, their spouse’s benefit also increases. This is because the non-working spouse is entitled to a portion of the working spouse’s benefit, and if something happens to the higher earner, the surviving spouse can receive their benefit. This shows that Social Security isn’t just an individual decision; it’s a family one.

Impact on Children and Survivors

The decisions made about collecting Social Security can also impact children. Survivor benefits are available to widows, widowers, and sometimes children. The higher the benefit the deceased worker was receiving, the more money their children may be entitled to. This further emphasizes the need for careful planning when deciding when and how to claim benefits.

Recent Changes to Social Security Law

The Social Security system does see changes, and a notable one occurred in January 2025. The Windfall Elimination Provision (WEP) was eliminated. This provision had affected many public sector workers who received pensions from jobs where they didn’t pay into Social Security. Before this change, these workers often had their Social Security benefits reduced. Eliminating WEP has increased benefits for many Americans, sometimes by around $1,000 a month. If you were a public sector worker affected by WEP, it’s a good idea to check with Social Security to ensure this change has been applied to your account.

Common Pitfalls to Avoid

Sprung highlights two major pitfalls. The first is claiming benefits too early at age 62 without fully understanding how it affects your long-term income. Many people might be better off waiting until their full retirement age. The second pitfall involves earning income while collecting benefits before reaching your full retirement age. If you earn more than a certain amount before your full retirement age, your Social Security benefits will be reduced. Once you reach your full retirement age, you can earn as much as you want without any penalty. Being aware of these rules prevents unpleasant surprises, like finding your benefit check is much smaller than you expected because you were still working.

Advice for Younger Workers

For younger people, especially those in their 20s and 30s, the message is to be mindful of the future of Social Security. While it’s unlikely to disappear completely, it may change. The advice is not to rely solely on Social Security for retirement income but to focus on building your own retirement savings. This means saving as much as possible, as early as possible. Tools like 401(k)s and IRAs (including Roth IRAs) are valuable. Starting to save from your very first job, whether after college or when you enter the workforce, allows the power of compounding interest to work in your favor. The earlier you save, the more your money can grow over time.

The Future of Social Security

Sprung isn’t overly worried that Social Security will go away. He believes changes will likely be made to ensure its long-term stability. Historically, adjustments like raising the full retirement age have helped. Other potential changes could involve people contributing a larger portion of their income or adjusting how benefits are calculated. These measures are designed to keep the system funded for future generations, though they might mean slightly different rules or benefit levels over time.

Delaying Benefits: Challenges and Solutions

For those nearing retirement who are considering delaying their Social Security benefits to get a higher monthly payment, the main challenge is covering living expenses in the meantime. If your planned Social Security benefit is, for example, $2,000 a month, and you decide to delay collecting it, you need to find that $2,000 from other sources. This means having other savings or assets that can provide that income until you start your Social Security checks. If you have the ability to bridge this gap with other funds, delaying Social Security is often a smart financial move that leads to greater lifetime benefits.

Source: Social Security: How to Avoid Costly Mistakes (YouTube)