Costly Mistakes to Avoid When Claiming Social Security Benefits

 For most retirees, Social Security is one of the most important and reliable sources of income. Unfortunately, many people make costly mistakes when they claim their benefits. Working with experienced Raleigh financial advisors can help you avoid missteps that might reduce your income, increase your taxes, or limit flexibility later in retirement.

 Since these decisions are often permanent and irreversible, understanding the program’s rules before filing is critical.

Below are seven of the most common, and most expensive, mistakes to avoid:

1. Not Recognizing That Benefits Are Taxable

 Many retirees assume Social Security income is tax-free. The reality is that up to 85% of benefits may be subject to federal income tax, depending on your overall income.

 The IRS uses a formula called provisional income—which includes your adjusted gross income, tax-exempt interest, and half of your Social Security benefits—to determine how much is taxable.

 For example, a married couple with $40,000 in IRA withdrawals and $30,000 in Social Security benefits could see a large portion of their benefits taxed. Without planning, this can trigger a surprise tax bill and reduce cash flow.

 On top of that, some states also tax Social Security benefits. Strategic withdrawals from tax-deferred and Roth accounts, or managing income to “fill lower tax brackets,” can minimize how much of your benefit is exposed to taxes.

2. Claiming Before Full Retirement Age Without Understanding the Reduction

 Your Full Retirement Age (FRA) depends on your birth year—it’s 66 for those born between 1943 and 1954 and gradually increases to 67 for those born in 1960 or later.

 If you claim benefits before FRA, your monthly check is permanently reduced for life. The reduction can be significant: claiming at 62 instead of 67 reduces benefits by about 30%.

 This matters not only for your own income but also for your spouse’s. A lower benefit reduces the amount a surviving spouse could receive as a widow(er).

 Many retirees underestimate the ripple effect of filing early, assuming they can “make up for it later,” but once you lock in your benefit, it cannot be undone except under very narrow circumstances.

3. Taking Benefits Too Early Without a Plan

 While you can start collecting benefits at age 62, that doesn’t mean you should.

 People often file as soon as they’re eligible without weighing long-term consequences. By claiming early, you may receive benefits for more years, but your monthly check will be smaller. If you live into your late 80s or 90s, the cumulative difference can easily amount to tens of thousands of dollars in lost income.

 There’s also the earnings test to consider. If you claim before FRA and continue working, Social Security withholds $1 in benefits for every $2 you earn above the annual earnings limit ($22,320 in 2024, adjusted annually).

 Although withheld benefits may be credited back later, it can complicate cash flow and create frustration for retirees who didn’t realize their checks could shrink.

4. Overlooking Spousal and Survivor Benefits

 Social Security isn’t just about your own retirement benefit. Spouses, divorced spouses (married at least 10 years) and surviving spouses may be eligible for additional benefits. Unfortunately, many people either don’t know these benefits exist or they unintentionally reduce them.

 For example, a surviving spouse can receive up to 100% of a deceased spouse’s benefit. But if the deceased spouse claimed early, the survivor is left with a permanently smaller check.

 Similarly, divorced individuals may qualify for spousal benefits without affecting their ex-spouse’s benefits at all, but many never take advantage. Understanding these options can dramatically improve retirement confidence for both spouses.

5. Failing to Coordinate Social Security with Other Income Sources

 Social Security should be viewed as part of a comprehensive retirement income plan, not a stand-alone decision.

 When and how you claim interacts with pensions, annuities, investment withdrawals, and part-time work. If you claim without considering the bigger picture, you may push yourself into a higher tax bracket or lose opportunities to optimize cash flow.

 For example, drawing IRA funds in the early retirement years (before claiming Social Security) may allow you to take advantage of lower tax brackets and reduce required minimum distributions later.

 On the other hand, starting Social Security earlier while reducing withdrawals might make sense for retirees with limited savings. The key is coordination, not isolation. 

6. Ignoring Longevity Risk

 One of the biggest risks retirees face is outliving their money. Social Security is one of the few sources of guaranteed, inflation-adjusted lifetime income.

 By delaying benefits to age 70, retirees earn delayed retirement credits, which increase benefits by 8% per year after FRA. For someone with longevity in their family or good health, this can provide significant financial security in later years.

 Too often, people focus only on the short-term — “I want to get something out of the system while I can.” But delaying benefits can serve as insurance against longevity, especially for the higher-earning spouse, since the surviving spouse inherits the larger benefit.

 Ignoring this tradeoff can leave retirees, especially widows and widowers, with less income at the exact time they need it most.

7. Not Seeking Professional Guidance

 The Social Security Administration provides information about rules and eligibility but does not offer personalized advice on when or how to claim benefits.

 Many people rely on rules of thumb, hearsay, or advice from friends. What worked for your neighbor may not work for you—especially when health, marital status, income needs, and tax situations differ.

 Professional analysis can show you the breakeven points for claiming early vs. delaying, the impact on survivor benefits, and the tax implications of different claiming strategies.

 Our Raleigh financial advisors specialize in retirement planning and can help you integrate Social Security into a broader plan, ensuring that the decision supports both your income needs today and your long-term confidence.

Final Thoughts

 Claiming Social Security is one of the most important financial decisions you’ll make in retirement, yet it’s often made too quickly and without full knowledge of the consequences.

 Avoiding these mistakes (understanding taxes, the impact of filing before FRA, the risk of taking benefits too early, and how Social Security coordinates with other income sources) can make a dramatic difference in your lifetime income.

 Before you file, take time to model different scenarios and schedule a consult with our Raleigh financial advisors who understand social security. The right strategy can mean thousands of dollars in additional lifetime income, lower taxes, and greater confidence throughout retirement.

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.