Ideally, you’ll come into retirement with a nice chunk of money in your IRA or 401(k) plan. But even so, there’s a good chance Social Security will provide a substantial portion of your retirement income. So the last thing you’ll want to do is slash those benefits needlessly. But if you fall victim to these three mistakes, that could end up happening — and your retirement might suffer as a result.
1. Not knowing your full retirement age
The monthly Social Security benefit you’re entitled to collect in retirement is based on your personal earnings history. And you can claim that benefit in full once you reach full retirement age, or FRA.
FRA hinges on your year of birth, as follows:
| Year of Birth | Full Retirement Age |
|---|---|
| 1943-1954 | 66 |
| 1955 | 66 and 2 months |
| 1956 | 66 and 4 months |
| 1957 | 66 and 6 months |
| 1958 | 66 and 8 months |
| 1959 | 66 and 10 months |
| 1960 or later | 67 |
DATA SOURCE: SOCIAL SECURITY ADMINISTRATION.
Some people, however, claim Social Security without first knowing their FRA — and inadvertently reduce their benefits in the process. If you want to avoid that fate, be sure to learn your FRA ahead of time.
2. Claiming benefits at 62 because you’re worried the program will run out of money
Although FRA is when you’re entitled to your full monthly Social Security benefit, you can sign up as early as age 62. And you may be inclined to go this route in light of news that Social Security is experiencing its share of financial woes.
But one thing you shouldn’t do is rush to sign up for benefits at age 62 because you think the program is running out of money. That’s just not happening.
What is happening is that Social Security is on track to deplete its trust funds in a little over a decade. Once that happens, benefit cuts may be inevitable. But the program is not in danger of running out of money completely, primarily because it gets the bulk of its revenue from payroll taxes. As long as we have a workforce, the program can continue to exist and pay benefits.
Meanwhile, if you claim benefits before reaching FRA, they’ll be reduced on what’s generally a permanent basis. That’s a hit you may decide to take in exchange for getting your money sooner. But you shouldn’t let your fear of Social Security disappearing drive that decision.
3. Assuming you have to claim benefits when you sign up for Medicare
Many seniors enroll in Medicare once they turn 65, as that’s when eligibility begins. You may be inclined to sign up for Social Security at the same time. But rest assured that you do not have to do so.
It’s more than possible to enroll in Medicare and hold off on claiming Social Security. And since FRA doesn’t begin until after age 65, waiting to file for benefits could mean avoiding a reduction in your monthly income.
Now you may have heard that once you’re on Medicare, your Part B premiums will be deducted from your Social Security benefits. And that’s true. But you can also pay those premiums directly if you haven’t filed for Social Security yet. It’s not like Medicare won’t take your money from another source, like your bank account.
Social Security could end up providing you with quite a bit of retirement income, so it’s important to file strategically. It’s also a good idea to steer clear of these mistakes, as they could leave you with less income for the rest of your life.
