Social Security Shock: The One Filing Mistake That’s Slashing Retirees’ Income for Life

 

October 26, 2023 – In the world of retirement planning, a quiet crisis is unfolding. A single, common error made when filing for Social Security benefits is costing countless retirees thousands of dollars over their lifetimes, leaving them with a permanently reduced income. Experts are now sounding the alarm, urging soon-to-be retirees to avoid this costly trap that has already impacted many like John Thompson from Ohio.

The mistake, identified by financial advisors across the country, is claiming Social Security benefits too early. Many Americans, eager to start their retirement, file for benefits as soon as they become eligible at age 62. This decision, however, comes with a heavy long-term price. Claiming before reaching what the Social Security Administration calls “Full Retirement Age” can slash your monthly benefit amount by as much as thirty percent. This reduction is permanent.

John Thompson’s story is a typical example. He retired from his job in Cleveland and filed for Social Security immediately at age 62. He thought it was the normal thing to do. Now, he understands the financial consequence. “I filed for Social Security as soon as I turned 62 because I thought it was the norm and I was eager to retire. It wasn’t until later that I realized how much more I could have received if I had waited,” he explains. His monthly check is significantly smaller than it could have been.

The mechanics of the system reveal why waiting is so powerful. Your Full Retirement Age depends on your birth year. For many, it is 66 or 67. If you wait until this age, you receive one hundred percent of your calculated benefit. But for each year you claim before that age, your benefit is reduced. Conversely, delaying your claim past your Full Retirement Age increases your benefit. This continues until you reach age 70. This delay can add up to an eight percent increase per year. Waiting until 70 could mean a benefit that is thirty-two percent higher than what you would have received at your Full Retirement Age.

This difference is not just a monthly concern. It compounds over a twenty or thirty-year retirement. A smaller monthly check means less money for healthcare, travel, and daily living costs over your entire lifetime. It also means a smaller annual cost-of-living adjustment, as those are based on your current benefit amount. The loss grows larger every year.

So, how do you decide the right time to file? The answer is deeply personal. Financial advisors use special software to run simulations. They consider your individual retirement savings, your life expectancy, and your family’s health history. If you have other sources of income, like a pension or a robust 401(k), you might be able to afford waiting. If you are in poor health, claiming earlier could make more sense.

The decision is not just financial. Emotional and psychological factors play a big role. Some people file early because they are burned out from their jobs. Others have health concerns that push them into retirement. A lack of clear information about the long-term impact is also a major driver. For those who have already filed early, like John Thompson, there are limited options to fix the mistake. One strategy is to suspend your benefits after you reach your Full Retirement Age. You can then restart them at age 70. This allows your benefit to grow, though it will not reach the level it would have if you had never claimed at 62. “I was able to suspend my benefits at 66 and restart them at 70, which increased my monthly payments, though not to the level they would have been if I had initially waited,” John notes.

Future retirees must also think about how their decision affects their spouse. Claiming early can reduce the survivor benefit a widow or widower receives. A comprehensive filing strategy should consider both partners’ benefits. The key takeaway is the need for careful, personalized planning. Rushing to claim Social Security can be a severe financial error. Taking the time to understand the system and consulting with a professional can help ensure you maximize this critical piece of your retirement income. It is a decision that will echo for the rest of your life.