The age when you first start getting Social Security payments is one of the most important decisions you’ll make that affects the size of your checks. Social Security offers a guaranteed income throughout retirement, yet many Americans are uncertain about how to incorporate it into a retirement income plan.

Most folks don’t know at what age they are eligible, or that early filing for benefits locks in a permanent reduction, or what percentage of benefits are taxable. Not being properly informed can cost you.

Mistake #1:  Taking early benefits. Any senior who starts their check before their own designated full retirement age (FRA) will be hit with early filing penalties which cause a reduction in the standard benefit due at FRA. The exact impact of early filing penalties depends on just how soon before their FRA someone starts receiving their checks, but a claim at 62 could lead to as much as a 30% reduction in monthly income, and it doesn’t go back up.

You may not worry too much about the “temporary” decline in income — especially since you’ll benefit by having money coming in right away. But after you realize you’ll be reducing your benefits for life, that’s a different story. Here’s an example:

If you live until 85, shrinking your benefits by $5,760 per year would mean giving up around $103,680 in income you could have received from age 67 to age 85 had you just waited to claim benefits. Of course, you will have received benefits for five extra years if you started your checks at 62 instead of 67. But five years of retirement benefits equaling $1,120 adds up to just $67,200. You’d end up with $36,480 less over your lifetime than if you’d delayed your claim and gotten your full benefit from age 67 to age 85 instead of accepting a reduced benefit for life.

Mistake #2:  Taking early benefits while working. When you’re receiving Social Security benefits while also working, there’s an earnings limit — specifically impacting your benefit while you’re younger than your Full Retirement Age. For 2022, the annual limit is $19,560, and for every $2 over the limit, Social Security will withhold $1 from your benefits. Once you reach FRA, there is no longer an earnings limit, so you can earn as much as you want, with no more benefits being withheld. But if you have been getting along just fine working and without the Social Security benefit for the better part of those few years, is there really a need to receive it at this point? There is an option! At FRA, you can voluntarily suspend benefits, allowing those delay credits to accrue, until as late as age 70. AND, if it turns out that the additional years of earnings are higher than what you had earned earlier, or maybe replaced zero earnings years, then benefits would be further enhanced by the addition of this income later in life.

Mistake #3: Taking early benefits, realizing you made a mistake, and not knowing how to fix it. If you are within the first 12 months of your original filing, you can withdraw your filing application from Social Security, and pay back the benefits that you have received up to that date. Your record with Social Security is then effectively wiped clean, and you can refile again at any point in the future, but hopefully not until your FRA.

Mistake #4: Not delaying your Social Security filing past FRA. For each year you do delay, up until the age of 70, your monthly benefit will grow by 8%. If your FRA is 67, waiting until age 70 to file will mean boosting your Social Security income by a almost 24%. While delaying benefits until that point means having to work longer, once you lock in that higher benefit, it’s yours to enjoy for the rest of your life. Do any of them your other retirement income sources come with a guaranteed 24% boost?

Reach out to us: Two things are for certain: 1) Everyone should be interested in talking with a financial advisor about creating income streams that would allow them to delay their Social Security benefits; and 2) Couples should be interested in discussing spousal benefit strategies for Social Security with a financial advisor. Let our team help educate you and guide you toward the best decision for your situation. I, Paul Wieseneck, CPA, am also a Registered Social Security Analyst (RSSA) and can help you prepare for your financial future with greater knowledge and guidance about Social Security planning. Please feel free to contact me directly at 561-209-1102, with any questions.

TFG Financial Advisors, LLC is a registered investment advisor.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results.  Investments involve risk and are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.