Social Security is a cornerstone of retirement planning for millions of Americans. For couples, it can be a significant source of income during their golden years. However, navigating the complex rules and regulations of Social Security can be daunting, and mistakes can be costly. In fact, some couples end up losing as much as $100,000 in potential benefits due to common errors.
This article aims to shed light on these mistakes and provide actionable advice to help couples maximize their Social Security benefits. Whether you’re nearing retirement or just starting to plan for it, understanding these pitfalls can save you a fortune and ensure a more secure financial future.
The High Cost of Social Security Mistakes
When it comes to Social Security, the stakes are high. Couples who make common mistakes can lose tens of thousands of dollars in potential benefits. For example, claiming benefits too early can result in a permanent reduction of up to 30%. Over a lifetime, this can add up to a significant amount.
Consider a couple where both partners are eligible for substantial benefits. By claiming early, they might miss out on tens of thousands of dollars each year. Over a decade, this can easily exceed $100,000. The key is to understand the rules and plan strategically to avoid these costly errors.
Claiming Too Early
The Mistake: One of the most common mistakes couples make is claiming Social Security benefits too early. While it may be tempting to start receiving benefits as soon as you turn 62, doing so can result in a permanent reduction of up to 30%. This reduction is based on your Full Retirement Age (FRA), which is typically between 66 and 67, depending on your birth year. Claiming early means you lock in a lower benefit amount for life.
How to Fix It: If you realize you’ve claimed too early, you have a few options. One is to withdraw your application within 12 months of claiming. This allows you to repay the benefits you’ve received and then reapply later for a higher amount. Another option is to suspend your benefits once you reach your FRA. This way, you can still earn delayed retirement credits, which increase your benefit by 8% for each year you delay claiming up to age 70.
Who Needs This Fix? Couples with other income sources, such as pensions or investments, might benefit from delaying their Social Security claims. By doing so, they can maximize their benefits and ensure a higher income stream during retirement.
Who Doesn’t? For couples who need immediate financial support, claiming early might be necessary. However, it’s crucial to weigh the long-term impact of reduced benefits against short-term financial needs.
Ignoring Spousal Benefits
The Mistake: Many couples overlook the potential for spousal benefits, which can provide up to 50% of the higher-earning spouse’s FRA benefit. This is particularly important for spouses who have a lower work history or no work history at all. Ignoring these benefits can result in a significant loss of income during retirement.
How to Fix It: To maximize spousal benefits, the higher-earning spouse should delay claiming until age 70. This allows them to earn delayed retirement credits, increasing their own benefit and, consequently, the spousal benefit. The lower-earning spouse can then claim their spousal benefit at their FRA, ensuring they receive the maximum amount.
Who Needs This Fix? Spouses with lower or no work history should pay close attention to spousal benefits. By leveraging these benefits, they can secure a more substantial income stream during retirement.
Who Doesn’t? Couples with similar earnings histories might not see as much benefit from spousal benefits. However, it’s still worth checking to ensure they’re not missing out on any additional income.
Miscalculating the Earnings Limit
The Mistake: If you claim Social Security benefits before your FRA and continue to work, your benefits may be reduced if your earnings exceed certain limits. For 2025, the limit is $20,760 per year. Earnings above this amount can reduce your benefits by $1 for every $2 earned. This can be a significant reduction, especially if you’re still working full-time.
How to Fix It: To avoid this reduction, consider delaying your Social Security claim until you’ve stopped working or your earnings fall below the limit. Alternatively, if you’ve already claimed and are affected by the earnings limit, you can suspend your benefits once you reach your FRA. This allows you to earn delayed retirement credits and increase your future benefits.
Who Needs This Fix? Couples planning to work past their FRA should be particularly cautious about the earnings limit. By understanding and managing this limit, they can maximize their benefits without unnecessary reductions.
Who Doesn’t? Couples who don’t exceed the earnings limit or plan to retire early might not need to worry about this issue. However, it’s still important to be aware of the limits to avoid any surprises.
Not Understanding Taxes on Benefits
The Mistake: Many retirees are surprised to learn that up to 85% of their Social Security benefits can be taxable. This can significantly reduce the amount of money they have available for living expenses. The taxability of benefits depends on your combined income, which includes your adjusted gross income, nontaxable interest, and half of your Social Security benefits.
How to Fix It: To minimize the tax impact, consider strategies such as Roth conversions, which can shift taxable income to a tax-free account. Additionally, managing your investment income and timing large withdrawals can help keep your taxable income lower.
Who Needs This Fix? Higher-income retirees are more likely to face significant taxes on their Social Security benefits. By planning ahead and using tax-efficient strategies, they can reduce their tax burden and keep more of their benefits.
Who Doesn’t? Lower-income retirees might not face significant taxes on their benefits. However, it’s still important to understand the potential tax implications to avoid any unexpected financial surprises.
Overlooking Delayed Retirement Credits
The Mistake: Delaying your Social Security claim until age 70 can earn you delayed retirement credits, increasing your benefit by 8% for each year you delay. Many couples overlook this opportunity, resulting in lower lifetime benefits.
How to Fix It: If possible, delay claiming your benefits until age 70. This maximizes your benefits and provides a higher income stream for life. For couples, coordinating their claiming strategies can further enhance their combined benefits.
Who Needs This Fix? Couples expecting a long lifespan should consider delaying their benefits to maximize their lifetime income. By doing so, they can ensure a more secure financial future.
Who Doesn’t? Couples with immediate financial needs might not be able to delay their benefits. However, it’s important to weigh the long-term benefits against short-term financial pressures.
Assuming Social Security Covers All Retirement Needs
The Mistake: Social Security was never intended to be the sole source of retirement income. Many couples make the mistake of assuming it will cover all their needs, leading to financial shortfalls in retirement.
How to Fix It: Supplement your Social Security benefits with other income sources, such as annuities, life insurance, and savings. Diversifying your income streams can provide a more stable and secure retirement.
Who Needs This Fix? Couples without sufficient retirement savings should prioritize building additional income sources. By doing so, they can ensure they have enough to cover their living expenses and enjoy their retirement.
Who Doesn’t? Couples with significant investment income might not need to supplement their Social Security benefits as much. However, it’s still wise to have a diversified portfolio to manage risk.
Not Coordinating with a Spouse
The Mistake: Couples often make the mistake of claiming their Social Security benefits separately without coordinating their strategies. This can result in missed opportunities to maximize their combined benefits.
How to Fix It: Work together to develop a coordinated claiming strategy. Consider factors such as life expectancy, work history, and financial needs. By planning together, you can ensure you’re making the most of your benefits.
Who Needs This Fix? Married couples planning for long-term financial security should prioritize coordinated claiming strategies. By working together, they can maximize their combined benefits and ensure a more secure financial future.
Who Doesn’t? Single individuals don’t need to coordinate with a spouse. However, they should still plan strategically to maximize their own benefits.
Missing Out on Benefits for Divorced Spouses
The Mistake: Divorced individuals can claim benefits based on their ex-spouse’s work record if they were married for at least 10 years. Many people are unaware of this option and miss out on significant benefits.
How to Fix It: If you’re divorced and meet the eligibility criteria, consider applying for divorced spousal benefits. This can provide a substantial income stream, especially if your ex-spouse has a higher work history.
Who Needs This Fix? Divorced individuals who were married for over 10 years should explore this option. By claiming divorced spousal benefits, they can secure a more substantial income during retirement.
Who Doesn’t? Couples with higher individual benefits might not need to rely on divorced spousal benefits. However, it’s still important to understand all available options.
Not Checking Your Social Security Statement
The Mistake: Many people assume their Social Security records are accurate and don’t bother to check their statements. This can lead to errors in their earnings history, resulting in lower benefits.
How to Fix It: Regularly review your Social Security statement to ensure your earnings history is accurate. If you find any discrepancies, report them immediately to correct your records.
Who Needs This Fix? Everyone nearing retirement should make it a habit to review their Social Security statements. By catching and correcting errors early, you can ensure you receive the benefits you’re entitled to.
Who Doesn’t? No one should ignore their Social Security statements. Regular reviews are essential to ensure accuracy and maximize your benefits.
Forgetting About Survivor Benefits
The Mistake: Survivor benefits can provide significant financial support to a surviving spouse or divorced individual. Many people overlook these benefits, resulting in lost income during a challenging time.
How to Fix It: Understand and apply for survivor benefits if you’re eligible. These benefits can provide a crucial financial lifeline, especially if you’ve lost a significant income source.
Who Needs This Fix? Surviving spouses and divorced individuals should be aware of their eligibility for survivor benefits. By claiming these benefits, they can secure a more stable financial future.
Who Doesn’t? Couples with higher individual benefits might not need to rely on survivor benefits as much. However, it’s still important to understand all available options.
Conclusion
Navigating the labyrinth of Social Security benefits is no small feat, and the consequences of missteps can be financially devastating. Couples who fail to meticulously plan their Social Security strategy may find themselves grappling with a significant reduction in their retirement income—potentially amounting to a staggering $100,000 or more over their lifetimes. The complexity of Social Security rules demands a level of diligence and foresight that many couples may not initially realize is necessary.
From the timing of benefit claims to the intricacies of spousal and survivor benefits, each decision carries significant weight. The allure of early benefits or the assumption that Social Security alone will suffice for retirement can lead to costly mistakes that are difficult to rectify. Moreover, the financial landscape of retirement is fraught with uncertainties. Market fluctuations, healthcare costs, and changing living expenses can all impact the adequacy of one’s retirement savings.
Relying solely on Social Security without a comprehensive financial plan is akin to building a house on sand—it may seem stable initially, but it can crumble under pressure. To avoid these pitfalls, couples must take a proactive and strategic approach. Regularly reviewing Social Security statements, understanding the tax implications of benefits, and coordinating claims with a spouse are essential steps.
