3 Social Security Mistakes That Could Shrink Your Benefits in Retirement

For many retirees and soon-to-be retirees, Social Security benefits are a significant source of income. In fact, approximately 20% of baby boomers say their benefits will be their only source of income in retirement, according to a recent survey from Nationwide.

If your monthly checks are going to make up a substantial chunk of your retirement income, it's smart to make the most of them. It's also a good idea, then, to ensure you're avoiding these common mistakes that could potentially shrink your Social Security benefits.

Older couple looking at documents and a calculator

Image source: Getty Images.

1. Claiming too early

The earlier you begin claiming benefits, the smaller your checks will be each month. The earliest you can begin claiming is age 62, but if you choose to file that early, your benefits will be reduced by up to 30%.

It's also important to note that these benefit reductions are permanent. One common misconception is that if you claim early, your benefits will only be reduced until you reach your full retirement age (FRA). A whopping 70% of boomers share this incorrect belief, Nationwide found.

The truth is that if you claim early, your benefits will be reduced for the rest of your life. And that can spell trouble if you're expecting to depend on Social Security for the majority of your income.

2. Waiting too long to begin claiming

On the flip side of the coin, however, waiting too long to claim benefits can also be detrimental to your retirement income. The longer you wait to begin claiming, the more you'll receive each month. By waiting until age 70 to file for benefits, you can receive your full benefit amount plus a bonus of up to 32% each month. Again, these adjustments are permanent, so you'll be receiving bigger checks for the rest of your life.

In many cases, delaying benefits is a smart move. You'll receive more money each month, which can go a long way toward enjoying a more comfortable retirement.

The reason this decision could shrink your overall benefits, though, is that if you live a shorter-than-average lifespan, you might actually come out ahead if you'd claimed earlier. If you only live to, say, age 75, you'll likely collect more in benefits over a lifetime if you'd claimed at age 62 rather than age 70. Although you'd receive smaller checks by claiming earlier, you'd also receive more of them over a lifetime. So before you begin claiming, consider how your estimated life expectancy could affect your decision.

3. Not taking advantage of all the types of benefits you're entitled to

Retirement benefits are the most common types of benefits retirees are eligible to collect, but they're not the only type out there. You may also be eligible to collect spousal benefits, divorce benefits, or survivors benefits, and because the Social Security Administration doesn't usually notify those who are eligible for these types of benefits, it pays to understand what you're entitled to.

Spousal benefits are available to those who are married to someone eligible to collect Social Security benefits. The maximum amount you can receive in spousal benefits is 50% of the amount your spouse is entitled to at his or her FRA. If you're receiving less than that based on your own work record, the Social Security Administration will pay out your benefit amount first, and then you'll receive an extra amount each month based on your spouse's work record.

Divorce benefits are similar to spousal benefits, except you cannot currently be married and your previous marriage needs to have lasted for at least 10 years. Survivors benefits are a little different in that they're not only available to surviving spouses, but also children, parents, and other family members who depended financially on the deceased person. How much you'll receive in survivors benefits varies, but in some cases, you could collect the deceased person's entire benefit amount.

If you're expecting to rely heavily on Social Security benefits in retirement, it's wise to ensure you're doing everything possible to make the most of them. By deciding carefully when to claim, and taking advantage of the different types of benefits you're entitled to, you can boost your benefits and enjoy a more comfortable retirement.

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