Don't Make These 3 Social Security Mistakes

Image source: Wikimedia Commons, courtesy Alex E. Proimos.

Most Americans rely more on Social Security for their income than on any other source. That makes it absolutely crucial to avoid making mistakes with your benefits. Yet with so much confusion about how Social Security works, it's easy to fall into a trap without even realizing it. Below, let's take a look at three key Social Security mistakes to avoid.

Thinking there's a one-size-fits-all strategy for when to take benefitsMost Americans take their Social Security at their earliest opportunity when they turn 62, and many financial experts argue that waiting longer before taking benefits is a smarter move. Yet the biggest trap you can fall into when it comes to the timing of taking your Social Security is following a blanket rule without actually applying it to your individual situation.

Many issues that are specific to your individual situation go into making smart Social Security decisions, and they defy oversimplified rules of thumb. A life expectancy table might reduce a typical claiming situation to a mathematical formula, but applying your own personal medical and family history can change those equations dramatically. Simple dollar-value calculations don't incorporate your personal views on whether Social Security income early in your retirement has a greater quality-of-life value than greater amounts of income later in retirement. Having other income sources can give you more financial flexibility but also raise questions of having your benefits subject to income tax.

Knowing the pure financial aspects of the Social Security decision is important, but it's not determinative by itself. You also have to be able to apply your own facts and circumstances to come up with the best answer for you and your family.

Ignoring potential benefits for your familyOne of those individual factors that can have a dramatic impact on the optimal claiming decision involves family members and the extent to which your decisions will affect them. If you're single with no eligible children to receive benefits on your work history, then you can make decisions taking only your own personal preferences into mind.

Those with family members who are eligible for Social Security face a different situation. For instance, if you claim early, then not only will your own monthly benefits be lower, but also any survivor benefits your spouse receives will also be reduced. Waiting longer will boost both your retirement benefits and a spouse's survivor benefits. In some cases, considering the bigger picture will lead you to make a different decision. In others, such as when your spouse already has an ample work history and will receive sizable benefits without relying on your work history, it's less likely to change your decision.

Again, your own personal preferences will dictate how much weight to put your family members' needs. Nevertheless, taking them into account is important if you intend that they'll play any role in your decision-making process.

Not keeping up with law changesSocial Security has seen big changes over the years, and out-of-date information can lead to bad planning. You don't want to think that you can take advantage of a strategy only to find out later that it's unavailable.

For instance, it used to be that you could change your mind about Social Security to an unlimited extent, withdrawing your application and repaying any benefits you had received. You could then file at a later date and get larger monthly payments. But in 2010, the Social Security Administration changed its rule, limiting the do-over option to the first 12 months after your initial claim for benefits.

More recently, the elimination of the file-and-suspend and FAASF strategies will have a huge impact on future retirees. Although grandfathering provisions will allow some to keep using these strategies, most younger people won't. If you don't update your Social Security claiming plans, then you could end up making a bad choice based on an outdated understanding of the law.

Figuring out how to get Social Security is hard, but knowing potential mistakes can be valuable. By steering clear of these three danger areas, you can make a more informed decision that reflects your own personal needs.

The article Don't Make These 3 Social Security Mistakes originally appeared on Fool.com.

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