These Social Security errors could cost you in retirement

Each month, the U.S.’s Social Security Administration (SSA) sends out over 71 million payments to beneficiaries of the Social Security program, most of whom are retired workers. The benefit amount paid out to a retiree depends on several factors, including: their age at retirement; the duration of their work history; and their income and Social Security tax contributions during their career.

Social Security Horror Stories, a 2023 book by the Boston University economist Laurence Kotlikoff and the personal finance expert Terry Savage, walks current and future beneficiaries through typical mistakes and questions that people run into when claiming benefits. We looked at a few of the most common errors you should be aware of.

When to claim retirement benefits

Kotlikoff and Savage’s first recommendation relates to retirement age, which is an important consideration. Unfortunately, many people commit the error of requesting pension benefits when they reach the minimum retirement age of 62. This can reduce their monthly checks by up to 30%.

A better option is to wait until full retirement age - between 66 and 67 - or even hold off until the maximum age of 70. Those who wait until age 70 can receive around 75% more than those who apply at age 62. Therefore, it’s crucial to carefully consider your retirement age, to ensure you receive the maximum benefit possible.

Is the SSA paying you too much?

Overpayment is a significant problem that affects over a million Americans every year. It occurs when the SSA mistakenly calculates and sends more money to beneficiaries without their knowledge. People often find out about the overpayment years later, when they receive a letter from the SSA asking for its money back.

These sorts of mistakes can happen for a variety of reasons, and appealing them can be a daunting and time-consuming process that can take months or even years. Workers should therefore keep detailed records of their interactions with the SSA, including the information they provide to the agency, such as their earnings and income history. This can help them to avoid overpayment issues and ensure they receive the correct benefit amount.

Working while receiving Social Security retirement benefits

The Social Security ‘earnings test’ can cause confusion among beneficiaries. It’s a process that applies to those who claim benefits before their full retirement age and continue working, leading to a reduction in their payments if they earn above a certain income cap. The threshold amount changes every year, and in 2026 it is $24,480. Under this rule, workers below full retirement age lose $1 of their Social Security payments for every $2 they earn above the limit.

This can discourage Social Security recipients from continuing to work after they begin claiming their retirement payments.

However, what many people don’t realize is that the SSA then reimburses the benefits it held back once the worker reaches their full retirement age. This is thanks to a rule called the “adjustment reduction factor” (ARF). “Benefits withheld while you continue to work are not lost,” the SSA explains. “They are added to your monthly benefit once you reach FRA [full retirement age].”

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