3 Social Security Rules Many Retirees Ignore (and Regret)

For many retirees, Social Security inevitably ends up becoming an important income stream. So it's important to know how to make the most of those benefits.

Part of that includes understanding Social Security's many rules -- and following them strategically. Here are three Social Security rules retirees tend to ignore -- and regret it afterward.

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1. Claiming at 62 permanently locks in reduced benefits -- and COLAs

The earliest age to file for Social Security is 62. And with a full retirement age of 67, filing that early means reducing your monthly benefits by about 30%. But to be clear, that's not just a one-time reduction.

Social Security benefits are eligible for a cost-of-living adjustment, or COLA, every year. When you claim Social Security at 62, ongoing COLAs are applied to your reduced monthly benefit, not the amount you would have received at full retirement age. So the financial loss may be greater than you'd think.

2. Working after claiming benefits can temporarily reduce your checks

The Social Security Administration (SSA) allows retirees to work while receiving monthly benefits. And once you've reached full retirement age, you can earn any amount of money without having it shrink your checks temporarily.

But if your earnings exceed a certain threshold that changes each year known as the earnings test, you could have benefits withheld if you haven't reached full retirement age.

In that case, the SSA recalculates your benefits at full retirement age and pays that money back in the form of larger checks. What the SSA won't do in that situation, however, is take away the reduction in benefits you lock in by filing for them early.

Here's an example. Say you're eligible for $2,000 a month in Social Security at age 67, but you file at 62 and whittle your monthly checks down to $1,400. If you exceed the program's earnings-test limit that year, you may have a portion of those $1,400 checks withheld and repaid to you later. But the SSA won't restore your monthly benefits to $2,000 simply because you had some of that money withheld due to earning too much.

3. Your claiming decision can shrink (or boost) your spouse's lifetime income

When you're married, you need to know that your Social Security claiming decision could have an impact on your spouse's income -- for better and for worse.

If your spouse outlives you, they'll generally be entitled to survivor benefits from Social Security. Those benefits will equal 100% of the amount you received while you were alive.

If you claim Social Security early and reduce your monthly benefits, your spouse will be in line for smaller survivor benefits. If you delay Social Security past full retirement age and boost your benefits in the process, you'll leave your spouse with that much more money once you're gone. For this reason, it's important to think through your options carefully.

Social Security has many rules, and these three could have a huge impact on your household's retirement finances. As such, they're rules you need to pay attention to when making decisions on when to take benefits.

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