Social Security is one of the most critical financial considerations every American needs to account for in their retirement planning. Most of us will receive Social Security benefits at some point in our lives; right now, a little more than 1 in 5 of us already participate in the social welfare and insurance program.
But while it’s both ubiquitous and important … it’s also complex.
The most straightforward thing most of us know about Social Security is that part of our paycheck goes out of it. After that, things get a lot muddier. Social Security benefits are split across several categories, there are numerous ways to qualify, and they’re governed by an extensive set of rules.
Indeed, if you don’t know your way around Social Security, you could end up slipping in ways that could result in delayed and/or reduced benefits—and even throw off decades’ worth of retirement planning.
Today, I’ll go over some of the most common Social Security mistakes people make. Being aware of these mistakes, and how to keep from making them, can help you ensure you get the most out of this vital social safety net.
Don’t Make These Social Security Mistakes
The good news is, if you don’t think you understand all of the ins and outs of Social Security, you’re definitely not alone.
In a 2024 true-false quiz about Social Security retirement benefits, commissioned by MassMutual, 41% of respondents failed, and 37% earned a barely-passing “D.” A mere sliver—less than 1% of respondents—answered every question correctly.
Misconceptions about Social Security are no small thing. They can result in you receiving less of your benefits, and leave you less prepared for retirement.
Let’s look at some of the most consequential errors you’ll want to avoid:
1. Assuming Social Security Income Will Fully Replace Your Work Earnings
The Social Security Administration itself says Social Security was “never” intended to be a complete replacement of pre-retirement income. Indeed, even at the top end, the SSA says Social Security benefits started at “full retirement age” might replace as much as 78% for very low earners, but the median earner will receive closer to 42%, and maximum earners will see as little as 28%.
Sure, people who start collecting Social Security after full retirement age can receive higher percentages, but the point remains, it still likely won’t be enough to replace your full income.
On the upside, most financial advisors agree that the majority of people will need only 70% to 80% of their pre-retirement income to live comfortably. However, Social Security is likely to fall short of even that amount. So it’s wise to also have substantial retirement savings (preferably made in tax-advantaged retirement accounts to maximize your earning potential).
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2. Not Knowing How to Become Eligible (Or When You Will)
The vast majority of the time, when you become eligible (or are about to become eligible) for Social Security benefits, the SSA will contact you via mail to notify you. In other words: It’s very unlikely you’ll miss out on Social Security benefits because you didn’t know you could collect them.
However, you should still make yourself familiar with Social Security eligibility rules well before you actually need to apply, especially as they pertain to retirement benefits. Knowing when and whether (or not) you will be eligible could impact your entire retirement plan, including your savings goals and the age at which you expect to retire.
As a for-instance: The most common way of becoming eligible for Social Security is by reaching full retirement age, and yet, in the 2023 Nationwide Retirement Institute Survey, only 13% of respondents correctly guessed their full retirement age based on their birth year.
Here are a number of ways to become eligible for Social Security benefits:
- Reach age 62 (reduced benefits only) and have paid into Social Security for 10+ years
- Reach full retirement age (varies by birth year) and have paid into Social Security for 10+ years
- Have a qualifying disability
- Be married for at least one year to someone who receives retirement or disability benefits + be at least 62 years old OR have a child under age 16 in your care OR have a dependent child with a disability
- Be married for at least one year to someone who receives retirement or disability benefits + have a child under age 16 in your care
- Be married for at least one year to someone who receives retirement or disability benefits + have a dependent child with a disability
- Be the dependent child of someone receiving retirement or disability benefits + be age 17 or younger OR be age 18 or 19 in K-12 full time OR have developed a disability at age 21 or younger
- Be divorced from someone who receives retirement or disability benefits + have been previously married to them for at least 10 years + be at least 62 years old + be currently unmarried + not be entitled to the same or higher level of retirement or disability benefits
The SSA provides a full explanation of eligibility requirements if you’d like to check out other scenarios.
Related: Roth IRA vs. 529 Plan: Which Is Better for College Savings?
3. Taking Social Security Too Early
Virtually anyone reading this will reach full retirement age between 66 and 67; however, they don’t have to wait that long. Americans can start receiving Social Security benefits up to five years earlier.
But here’s the rub: If you take Social Security before your full retirement age, you’ll receive a reduced amount.
Specifically, your benefits will be reduced by 5/9ths of 1% for each month before normal retirement age, up to 36 months. If you retire even earlier than 36 months before full retirement age, your benefit reduction changes after the first 36 months, to 5/12ths of 1% per month, up to the maximum early retirement amount of 60 months. Per the IRS:
“For example, if the number of reduction months is 60 (the maximum number for retirement at 62 when normal retirement age is 67), then the benefit is reduced by 30 percent. This maximum reduction is calculated as 36 months times 5/9 of 1 percent plus 24 months times 5/12 of 1 percent.”
However, if you wait to retire sometime after full retirement age, you actually receive delayed retirement credits, calculated at different rates depending on when you were born. though the additional benefits stop at age 70. For those born in 1943 or later, your monthly rate of increase is 2/3rds of 1%, good for an 8% rate of increase across a full 12 months. (But you still must be insured under Social Security at your full retirement age.)
This isn’t a test of whether you can delay gratification. While you might receive reduced benefits prior to normal retirement age, depending on your situation, it might actually make sense to receive lesser benefits for longer.
Related: SEP IRA vs. Roth IRA: What’s the Difference?
4. Taking Social Security Too Late
On the flip side, some people wait too long to take Social Security.
The SSA estimates that over 1 in 8 of today’s 20-year-olds will die before even reaching age 67. So if you have a shorter life expectancy, for any reason, it might make sense to start collecting Social Security at the youngest age possible, rather than waiting until full retirement age or later.
No matter what your life expectancy, there is no reason to wait past age 70 to collect Social Security. Once you are 70 years old, you can technically continue to delay taking benefits, but your monthly benefit stops increasing. Also, in some situations, your medical insurance could be more expensive if you continue to delay applying for Social Security.
In short: Once you reach this age, there is simply no reason to postpone anymore.
Another consideration? If at some point, you’re eligible for Social Security benefits and collecting said benefits could prevent you from taking on high-interest debt, collecting earlier than planned could be a wise choice.
Related: How to Maximize Social Security Spousal Benefits
5. Earning Too Much Before Full Retirement Age
If you’re at or beyond normal retirement age, you can work a job and still receive your full retirement Social Security benefits. However, if you choose to receive retirement Social Security before full retirement age, you’re subject to benefit withholdings based on earnings limits that vary by year.
Here’s an example using data for people who were born Jan. 2, 1960, or later (if your birthday falls on Jan. 1, your age for determining your full retirement age is actually the prior year). If you’ll be younger than full retirement age for all of 2024, Social Security will withhold $1 in benefits for every $2 you earn over $22,320. If you will reach full retirement age sometime in 2024, Social Security will withhold $1 in benefits for every $3 you earn over $59,520.
But there’s a special exemption for people who retire early mid-year. No matter how much you’ve exceeded the annual allowable earned income cap by when you retire, as long as your monthly earnings after you retire are under a certain threshold ($1,860 in 2024), you will get a full Social Security check for every remaining month that calendar year. The annual limit applies again starting the next calendar year, and remains in place until you reach full retirement age.
Importantly: Withholdings are based on expected earnings and are made on a whole-month basis, with any over-withholding returned to you the next year. So if you expected to receive $600 per month in benefits in 2024 but needed to withhold $1,500 based on the allowable earnings cap, Social Security would withhold your entire benefit checks from January through March 2024 ($1,800), then in 2025, it would pay you back the additional $300 withheld in 2024.
How income is counted works differently depending on how you’re employed. If you work for another person, your wages count toward Social Security earnings limits. If you’re self-employed, only your net earnings from self-employment are counted. Income from investments, government benefits, interest, pensions, capital gains, and annuities don’t count toward the earnings limits as those are all considered investment or portfolio income and not earned income from working. However, an employee’s contribution to a retirement plan or pension, if the contribution is included in one’s gross wages, does count. (Note that income counts toward the limit as soon as it’s earned, rather than when it’s paid.)
Also, note that I keep saying “withhold.” While you might have your benefits reduced temporarily, you’ll get that money back. Specifically, once you reach full retirement age, your Social Security checks going forward will be recalculated higher based on how much was withheld.
Related: How Much Should I Contribute to My 401(k)?
6. Forgetting About Taxation (State-Dependent)
The good news is that most states don’t tax Social Security, with Missouri and Nebraska repealing their levies in 2024.
However, one-fifth of the country still taxes Social Security benefits. The 10 states still taking a piece of the pie are:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia (Note: West Virginia’s state taxes on Social Security will phase out in 2024 and 2025, and be eliminated in 2026.)
If you live in a state that taxes your Social Security benefits, and have no intention of moving, you’ll need to figure those taxes into your calculations of how much money you need saved.
Additionally, around 40% of people who receive Social Security have to pay federal income taxes on their benefits. Expect to pay Social Security taxes at the federal level if any of the following situations apply:
- You file your federal tax return as an individual:
- If your combined income is between $25,000 and $34,000, up to 50% of your benefits might be taxable.
- If your combined income is over $34,000, up to 85% of your benefits might be taxable.
- You file a joint return with your spouse:
- If your combined income is between $32,000 and $44,000, up to 50% of your benefits might be taxable.
- If your combined income is over $44,000, up to 85% of your benefits might be taxable.
- You’re married but file separately:
- The SSA says “you probably will pay taxes on your benefits” no matter your income.
Related: How to Max Out Your 401(k) + Other Retirement Accounts
7. Working Fewer Than 35 Years
Let’s see how well you remember learning averages in school.
Your Social Security benefit is calculated using the average earnings of your top 35 highest-earning years of working. So you find the sum of the earnings of those 35 years, then divide that number by 35.
But pretend you only worked in any capacity for 32 years of your life. Social Security doesn’t just find the average of your working years—it wants the average of 35 years. So the sum of those 35 years would include three zeroes, which could substantially bring down your average earnings.
If you’re just a few years short of the 35-year mark, you might want to consider working until you hit that benchmark. Even a few years of part-time work could provide a nice bump to your benefit amount. (Obviously, if you have extenuating circumstances preventing you from working, this might not be possible.)
Related: 401(k) Contribution Limits for 2024 [Save More in 2024]
8. Not Checking Your Earnings Record
By the way: Your earnings record isn’t immune to errors.
An employer might have reported inaccurate information. You might have changed your name after getting married and the change wasn’t processed correctly.
Whatever the reason, it’s possible your earnings record doesn’t precisely reflect reality. So it’s vital to check your earnings record, which can be accessed through your My Social Security account, to ensure everything looks right. If any details look incorrect, you can fill out a form to request a correction.
This applies to just about everyone, by the way. You don’t need to wait until you’re already collecting Social Security to view your earnings record. You can check it during your working years. And some experts recommend checking your statement annually so you can catch any errors right away.
One last thing. Most people will look for underreported income, which could lower their Social Security benefit. Makes sense. But don’t ignore any errors that might seem to benefit you, either. If the Social Security Administration pays out money it thinks it didn’t actually owe, they may try to take it back later.
Related: Federal Tax Brackets and Rates [2023 + 2024]
9. Remarrying (Read Below Before Getting Angry)
OK, let’s get something out of the way right now: We’re not calling the act of remarrying a mistake—we’re pointing out that remarrying could affect your Social Security benefits.
If you are divorced, and age 62 or older, you can claim spousal retirement or disability benefits on your former spouse’s record if you were married for at least 10 years. However, you can’t get those benefits if you remarry a different person unless that marriage ends by divorce, annulment, or death. (But it doesn’t matter if your former spouse gets married again—both you and their current spouse can draw from your former spouse’s record.)
Then there’s survivors benefits. Anyone who remarries before age 60 (age 50 with a disability) can not receive survivors benefits while married. Remarriage after age 60 doesn’t affect one’s eligibility for survivors benefits, regardless of whether they are a surviving spouse or a surviving divorced spouse. However, a surviving divorced spouse must have been married to the worker for at least 10 years to be eligible.
Also, we are not advising anyone to make a marriage decision based on Social Security benefits. Backing out the obvious emotional and romantic troubles that could cause, there are also monetary benefits of marriage that could outweigh the effective forfeiture of those benefits.
Related: How Are Social Security Benefits Taxed?
10. Exceeding Monthly Earning Limits (Disability Benefits Only)
Let’s say you become disabled but want to return from work and find a job you believe is uninhibited by your disability.
When you start working, you will enter a “trial work period.” During the trial work period, you will receive full Disability benefits. A month in which you earn over a certain threshold ($1,110 in 2024) will count as one month toward the trial. The trial work period ends once you’ve reached nine total months above that threshold within a rolling five-year period. (There is no upper limit on how much you can earn during those nine months—you will still receive full benefits.)
Assuming the employment is going well and you continue, the trial period is followed by an “extended period of eligibility” (EPE) that spans the next calendar 36 months. During this time, the person can continue working and still get Disability, provided you don’t exceed the earnings limit (in 2024, that’s $1,550 per month, or $2,590 per month if you’re blind). If you earn over the limit in a given month, you will not be eligible for a Disability distribution for that month.
In some circumstances, your EPE earnings limit might be increased. For example, if an individual has work expenses during the EPE, the limit could be increased to offset those costs. Another example is jobs that offer a subsidy, which the SSA defines as “extra support due to your disability, like paid breaks or less work than your peers.” In this situation, the SSA will talk with your employer to determine the dollar value of the subsidy, and it might rule to raise your earnings limit by that value.
If your job results in a sustained higher level of earnings that continues to exceed the monthly limit once the EPE has ended, you typically will lose your benefits.
If your Disability ends because your earnings eclipsed your limits, that doesn’t mean you won’t be eligible to restart benefits in the future should you need that option. If you need to restart within five years of your benefits ending, call SSA (1-800-772-1213, or TTY 1-800-325-0778 if you’re deaf or hard of hearing) to request an expedited reinstatement of your Disability. You will not need to fill out a new application; you will only need to answer some questions. The SSA also might approve benefits for up to six months while the agency reviews your request.
If you need to restart after five years from the lapse of your Disability benefits, or if your benefits ended for any other reason, you will need to file a new application.
