About two-thirds of Americans worry about the Social Security system, as it's supposed to start running a deficit soon -- and fully 41% worry a great deal, per a 2019 Gallup poll. In 2015, about half of surveyed non-retirees didn't expect that Social Security would be able to pay them a benefit in retirement.
Social Security isn't on the most solid ground at the moment, but the situation isn't as dire as many think. One worst-case scenario is that retirees in a few decades may only collect around 75% of what they're due. (The expected shortfall can relatively easily be more than corrected, if our representatives in Washington choose to do so.) Still, it's reasonable to worry about losing out on Social Security money, because for most of us, it will be a major income provider in retirement, if not our main source of income.
Here are some mistakes you might make with Social Security that could leave you collecting fewer dollars from the program:
No. 1: Starting to collect at the wrong time
It's underappreciated how much control we have over the size of our Social Security retirement benefit checks. You can start collecting your benefits at age 62, and you can delay doing so until age 70; the earlier you start, the smaller your checks will be, and vice versa. That can make delaying look like a no-brainer move, and it is the right move for many, but remember that if you start early, you'll get smaller checks, but you'll also receive a lot more of them.
Deciding when to start collecting your Social Security benefits, then, is an important matter and worth reading up on. You'll need to know what your "full retirement age" is first: It's 66 or 67 for most of us. The table below shows how your benefits grow or shrink depending on when you start collecting them:
|Start Collecting at:||Full Retirement Age of 66||Full Retirement Age of 67|
Source: Social Security Administration.
As you deliberate, consider factors such as your health and general life expectancy, how long your relatives have tended to live, and how soon you'll simply need the income in retirement. Starting to collect at 62 is a common move and not a bad one for many, but if you have a decent chance of living a longer-than-average life and you can afford to wait, delaying until age 70 may be smart.
No. 2: Not reporting your income and paying Social Security taxes
It's not a secret that many people under-report their income. This can happen on a small scale and be unintentional, or it can be a deliberate attempt to reduce one's taxes by concealing a significant amount of earnings. (It's often self-employed people who are able to do this, as their income isn't always reported automatically to the IRS by an employer.)
First off, it's illegal. The IRS expects us to report just about all our income. (There are exceptions: Those who earn very little, less than the minimum tax-filing threshold, don't have to file a return, though it can still be worth doing so, in order to take advantage of certain tax breaks.) Next, it's risky because the IRS is often aware of your income. Brokerages and financial services companies report your dividends and interest payments not only to you, but also to the IRS. So do many other sources of income. So the IRS is likely to flag and follow up on any discrepancy.
Failing to report income can also hurt you from a Social Security perspective, because your benefits are based on your earnings over your life. If you've hidden a lot of income over the years, you may have saved on taxes (while breaking the law), but you'll end up with less income in retirement -- a time when you may really need every dollar you can get.
No. 3: Not being Social Security-savvy
Finally, simply not being very savvy about Social Security can be costly. If you don't understand how your benefits are calculated, if you don't know what your full retirement age is and why it matters, if you haven't read up on spousal strategies -- all those things, and others, can lead to your making suboptimal moves and ending up collecting less money from Social Security over the years.
The average monthly Social Security benefit was recently just $1,507 -- or about $18,000 per year. If you want to collect more than that, spend some time learning more about Social Security and about how to increase your benefits.