If your goal is to enjoy a stress-free
retirement, it’s important to claim Social Security at the right time and
know how to manage your benefits. Part of that means knowing how the program
works, filing for benefits strategically, and stretching your retirement dollars further.
Unfortunately, there’s a lot of misinformation about Social Security that could
get in the way of making solid choices. A 2024 Social Security quiz given by
MassMutual showed that many Americans nearing retirement age are sorely
misinformed about how the program works.
Here are some common Social Security blunders that could wreck your retirement
finances, and what you can do to avoid them.
Find Out: 13 moves seniors could benefit from but often forget about.
1. Not withholding taxes from benefits
Since Social Security is earned by paying taxes on wages, you might assume that
your retirement benefits are yours to enjoy tax-free. But that’s not necessarily
the case.
You may have to pay taxes on up to 85% of your monthly benefits, depending on
your combined income. Combined income is calculated as your adjusted gross
income, tax-exempt interest income you receive, and 50% of your Social Security
benefits annually.
If you don’t have taxes withheld from your Social Security payments, you could
end up having to write the IRS a pretty large check when you file your taxes. To
avoid a big surprise, you can request that the SSA withhold taxes from your
benefits. You can ask to withhold 7%, 10%, 12%, or 22% of your monthly payments.
Shopping for cheaper auto insurance? Enter your zip code here to get started.
2. Not adjusting retirement plan withdrawals after benefits begin
You may retire and begin withdrawing money from your savings before you start collecting Social Security. But once you start getting benefits, it’s a good
idea to adjust your retirement plan withdrawals downward.
If you keep withdrawing at the same pace, you’ll, of course, have a higher income.
But you might also put your savings at a greater risk of running out.
It especially pays to reduce portfolio withdrawals during market downturns once
you’ve started Social Security. If you’re used to withdrawing $5,000 a month
from savings but you start collecting $2,000 a month in Social Security, there’s
no reason not to reduce your distributions to $3,000.
3. Not checking your earnings records
Your Social Security benefits are based on two things: your filing age and your
lifetime wage history. But if the Social Security Administration (SSA) has
incorrect wage information on record for you, it could result in smaller monthly
checks.
That’s why it’s important to create an account on SSA.gov
and check your Social Security earnings statements. They should include a
summary of your wages and an estimate of your monthly retirement benefit
at different ages. If you see that your income was underreported for any given
tax year, you can contact the SSA to resolve that discrepancy.
Save Money: Things to cut when living on retirement (many people ignore #11)
4. Not understanding spousal and survivor benefits
If you worked enough and paid into Social Security, you may be eligible for
retirement benefits. But your spouse may be entitled to Social Security even if
they didn’t work. Your actions, though, could impact spousal and survivor
benefits, so it’s important to know the rules.
For your spouse to claim spousal benefits from Social Security, you need to be
receiving benefits yourself. You may be inclined to delay your claim for larger
monthly checks. But if that forces your spouse to wait on Social Security, it
could be a problem. That’s something worth discussing jointly.
Similarly, if you pass away before your spouse, they’ll generally be entitled to
survivor benefits from Social Security that equal up to 100% of your monthly checks.
But if you file for benefits early and shrink your monthly checks in the
process, your surviving spouse’s payments will be smaller, too. That’s why it’s
important to look at the big picture and consider your household needs – not just your own – when filing for benefits.
5. Not understanding the earnings test
You’re allowed to work and collect Social Security at the same time. But if you
work and receive benefits before full retirement age (FRA), you’ll be subject to
an earnings test. And earning too much money could lead to having benefits
withheld.
The limits imposed by the earnings test change every year. In 2026, for example,
you can earn up to $24,480 before having benefits withheld if you don’t reach
FRA by the end of the year, or $65,160 if you will reach FRA by the end
of the year.
If you know your wages will exceed the threshold that applies to you, you can
prepare for withheld benefits, so your budget isn’t thrown for a loop. Or, you
may specifically opt to keep your earnings below the applicable threshold.
6. Overestimating what Social Security will pay you
Many retirees rely heavily on Social Security to make ends meet. But you should
know that your benefits might only replace about 40% of your paycheck if you
earn an average salary.
The SSA says financial planners recommend having enough retirement income to
replace 70% to 80% of your pre-retirement paycheck. If you don’t make an effort
to build savings for retirement and plan to live on Social Security alone, you
could end up struggling.
Bottom line
Social Security may play a huge role in your retirement plans. So it’s
important to understand how the program works and what to expect regarding
income.
It pays to spend some time reading up on Social Security before you retire so
you’re clear on its rules. It could also make sense to sit down with a financial
advisor and get recommendations on when to claim benefits based on your specific
circumstances.
More from FinanceBuzz:
