3 Costly Social Security Mistakes You Can't Afford to Make

Key Points

• Making mistakes when claiming Social Security can affect your income.

• You should coordinate with your spouse before you claim benefits.

• It's also important to do your break-even calculation and understand factors affecting your benefits.

• The $23,760 Social Security bonus most retirees completely overlook ›

For many seniors, there is only one source of guaranteed lifetime income: Social Security benefits.

Social Security is protected against inflation, and you will have these benefits coming into your household until you pass away.

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Since Social Security is a key source of retirement income that's likely going to play a major role in helping you cover the bills as a senior, you don't want to make mistakes when it comes to your benefits. Sadly, many people do.

If you don't want to be one of them, be sure to avoid these three common Social Security errors that could end up costing you.

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1. Not coordinating with your spouse

If you're married, you have to talk to your spouse before claiming Social Security, or you could regret it. That's because there are many strategies married couples could employ to maximize combined lifetime benefits. Unfortunately, mistakes could also end up costing your spouse, like claiming benefits early as a high earner and shrinking survivor benefits.

In many situations, it makes sense for a lower earner to claim benefits at a younger age to allow the couple to start bringing in Social Security checks to fund their retirement without drawing down their retirement plans too much. Then, when the higher earner claims, the lower earner switches to spousal benefits, so it won't really matter that they shrank their own retirement checks with the early claim.

This is just one of several potential approaches, and it's worth exploring all of the different claiming strategies with your spouse to maximize these inflation-protected lifetime benefits.

2. Not doing your break-even calculation

Failing to do a break-even calculation is another big mistake you can't afford because this calculation can help guide you in deciding when to claim Social Security.

See, benefits go down if you claim them before Full Retirement Age (FRA), and they go up if you claim them after. When you are deciding between two claiming ages during your retirement planning process, you need to figure out how long it would take you to make up for a delayed claim.

Say, for example, you have a standard benefit of $2,000 per month. A claim at 62, with an FRA of 67, would shrink that benefit by 30% due to early filing penalties. You'd be left with $1,400.

If you're deciding between claiming at FRA and getting your full $2,000 or claiming at 62 and getting $1,400, you should figure out how many months you'd have to collect the extra $600 that comes from the delay to make up for missing out on five years' worth of $2,000 checks.

Those five years of $2,000 checks would have been worth $120k. At a rate of $600 extra per month, it would take you 200 months or 16.6 years to break even.

If you don't think you'd live long enough, and you aren't worried about shrinking survivor benefits, you'd be a lot better off claiming early. If you think you'd live more than 16.6 years after claiming, a delayed claim would make sense since it would generate more lifetime income.

3. Shrinking your average wage

Finally, you need to be cautious about when to claim because you could shrink your average wage if you quit working while you are at the peak of your earning power.

Your Social Security benefit equals a percentage of average wages over 35 years. If you haven't yet worked for 35 years, or if you are earning a lot more than you did in earlier years, working a little longer could help boost your benefit by replacing some years of $0 wages or low wages with more years of higher earnings now.

By avoiding these mistakes, you could end up boosting your Social Security benefits considerably and having a much more secure future because of it.

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