Social Security offers retirement income to people who have worked a minimum of years, have made a minimum annual contribution to their fund, and retire at the age set for their age range. Yes, it is true that most Americans do not depend on their Social Security, as the only income, it is one of the main sources, so managing that money and distributing it wisely is important to learn how to do.
However, there are quite a few ways to mess up your retirement benefits, from very basic things like not following Social Security rules or the limitations established by law, to complex mistakes like not planning ahead and more. Find out what are the most common mistakes among Social Security recipients that ruin their income and learn from them to avoid them.
One of the crucial first steps when planning Social Security benefits is to calculate, before you retire, how much you expect to receive from the program. Of course, without having a clear idea of how much money will be available to you and your partner at the time of retirement, it is not easy to make monthly plans in order to have a loose budget.
Therefore, it is easy to verify your estimated payment directly on the Social Security website: you just need to have a registered account on the official website of the Social Security Administration (SSA), and you will be able to access this information.
In addition, it is important to note that you should constantly review your income history to make sure that Social Security has recorded all the correct amounts and the contributions made in the corresponding years and months. With this periodic review, you make sure that you will receive all the benefits that correspond to you.
It may not seem like much, but a month, two or three months that are not reported to Social Security, especially if they are within the last years of work, can reduce your retirement checks for the rest of your life.
Stop! — Don’t Apply for Retirement Too Early
According to Nick Strain, senior wealth advisor at Halbert Hargrove, it is dangerous for the security of your income to panic over misconceptions and unfounded fears regarding the stability of social security.
This leads many people to choose to claim their benefits before the age of 62… a big mistake, says Strain. In case you didn’t know how to do it before that age, it results in permanent damage to the payment, since if you claim your retirement before the age of 62, you will most likely see a monthly reduction in the amount of money you are going to receive.
According to Strain, the SSA will cut 30% off each of the monthly checks you’ll receive for the rest of your life, if you claim retirement before age 62.
Those who wait longer to apply can get substantial annual increases and enjoy a higher benefit permanently for the rest of their life. To give you a clearer idea, Social Security will increase by 6% a year after age 62 until full retirement age and then 8% a year from full retirement age until age 70.
The Mistake of Not Contributing Enough Years to Social Security
Not having the minimum amount of contributions leads to a reduction in the size of payments, and here is the explanation for this phenomenon: the Social Security Administration uses a specific method to determine the benefit that a person will receive upon retirement, and this calculation is based on the income earned during the 35 working years in which the individual earned the most money.
If a person has no recorded income in any of those 35 years, the insurance will include a value of 0 for each missing year in the calculation. For example, if in the 35 calculable years you registered contributions only in 33, the other two remaining years will appear with contributions of $0 lowering the average.
This will undoubtedly significantly affect the final amount that a person receives as a retirement benefit, since years with zeros reduce the average income and, therefore, the amount of the final monthly benefit.
The solution is very simple: You just have to make sure you reach the minimum number of years and have records of absolutely all the contributions that were made in those years.
Now, let’s return to the previous point where the importance of periodically reviewing the records on the SS website was mentioned, check your records with those that are reported there and that every last penny has been reported correctly so that your benefits are not reduced.
