Four mistakes that could cost you thousands of dollars in your pension

Social Security supports more than 70 million Americans, from retirees to the disabled to children. It's an incredibly complex system, with an instruction manual spanning 20 pages. It includes 000 rules that can easily confuse claimants and cost them tens of thousands of dollars in lost benefits. How to avoid the most common mistakes, the publication told CBS News.

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Some of these mistakes are detailed in a new book, Social Security Horror Stories, written by Boston University economist Lawrence Kotlikoff and personal finance writer Terry Savage. In some cases, errors are not the fault of the recipients, but rather the fault of the Social Security Administration itself. At the same time, applicants have virtually no opportunity to eliminate the problem or protect themselves in any other way.

Kotlikoff said there's a lot at stake in improving the system. Social Security is often a person's largest financial asset outside of homeownership, and a stable monthly income keeps millions of seniors from falling into poverty. However, the program may not be transparent and may inadvertently encourage certain choices that cause people to lose tens of thousands of dollars in benefits.

“About 20% of retirees rely entirely on Social Security as their sole source of income,” he noted. - This is a big problem. You have to take this seriously."

Kotlikoff, who has published academic research on Social Security and co-authored the best-selling book "Get Yours: The Secrets to Making the Most of Social Security," said mistakes can range from claiming benefits too early to following the wrong advice, such as claiming survivor benefits at the same time. and pension benefits, which may also result in loss of future benefits.

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He cautions people against relying solely on the Social Security Administration (SSA) because he and Savage have heard from people who were given incorrect or misleading advice by SSA employees, leading to costly mistakes that may be difficult or impossible to correct. .

“People need to understand that you’re out there on your own,” Kotlikoff noted.

The Social Security Administration says improving business processes "to better serve our customers remains a top priority."

But there are four common mistakes Kotlikoff says people often make when applying for Social Security.

Claiming benefits too early

This is perhaps the biggest problem Americans face because Social Security allows them to take their proper benefits when they turn 62, about five years before retirement age for most people. However, if you apply to Social Security earlier, your monthly payments will be reduced by 30%.

People can wait to claim Social Security until age 70, when they will receive the maximum benefit—about 76% more than at age 62. But only about 6% of Americans wait until age 70 to claim Social Security.

Kotlikoff believes the SSA may be unwittingly pushing people to claim benefits too early by providing them with a life expectancy calculator and actuarial tables that show the average number of extra years you can expect to live. He believes people should apply for Social Security based on the maximum number of years they could live, not the average.

Kotlikoff estimated in a research paper published last year that claiming benefits too early could cost you $182 in lost benefits.

"Widow" scam

Another mistake that can lead to loss of benefits, Kotlikoff calls “widow fraud,” which typically involves poor decisions when applying for benefits that can result in lower benefits.

One of the 12 types of benefits provided by Social Security is survivor benefits, which is paid to widows, widowers and dependents of eligible workers. For widows and widowers, they can apply for Social Security benefits based on their spouse's earnings, as early as age 60.

However, sometimes people mistakenly file for both survivor benefits and their own retirement benefits, even though the Social Security Administration only pays one benefit, whichever is higher.

The problem arises if the survivor's benefit is higher because by simultaneously filing a pension benefit claim, the widow or widower locks in their pension benefit at the age at which they filed the claim. In this case, the person risks losing thousands of higher benefits that he could have received if he had waited until retirement age or even 70 years old.

In this case, if more than a year has passed since the application for pension payments was submitted, it will be impossible to cancel this decision.

Earnings verification scam

Another Social Security rule that could stymie older Americans is the so-called earnings test, under which people who claim benefits before retirement age and continue to work will be taxed more if their earnings exceed a fairly low threshold.

In 2023, the threshold was $21, meaning people receiving Social Security until age 240 would have $67 deducted from their benefits for every $1 of income above the threshold. This often discourages older people from continuing to work after receiving Social Security because they fear losing some income due to the tax.

However, according to Kotlikoff, not everyone is aware of the “reduction factor,” or ARF, which restores those lost benefits once a claimant reaches retirement age.

Of course, not everyone, at least financially, will be able to wait until their benefits are adjusted once they reach age 67. But some people over 60 might make different decisions about work if they were aware of the problem, Kotlikoff said.

Overpayment trap

This problem affects about 1 million Social Security recipients a year and can cause financial hardship and stress.

This happens when the SSA overpays beneficiaries, who typically find out years later when the Social Security Administration sends a letter demanding repayment—even if it was not their fault.

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Sometimes the Social Security Administration is at fault, as its employees sometimes enter incorrect information into SSA systems or miscalculate benefits.

The agency notes that overpayments can occur for many reasons—most often when a recipient fails to report income or other changes that could affect their benefit amount.

But if this happens, the recipient will have to return the overpayment. And if you choose to appeal, it could take months or years to resolve, with no guarantee that the case will be decided in your favor.

That's why Kotlikoff urges people to keep careful records of their interactions with the Social Security Administration, as well as the information they send to the agency. In addition, he recommends checking your Social Security history to make sure the agency has the correct history of your earnings on file. To do this, you should create a My Social Security account on the agency's website, where you can view your past earnings and make sure they are accurate.

The SSA said: “We continually strive to improve the administration of our programs and reduce the number of improper payments. Although staff reductions and resource constraints have hampered our ability to provide services, payment accuracy rates remain very high.”

Agency officials say they have a responsibility to taxpayers “for the good management of trust funds,” meaning the financial accounts that hold money for programs.

“Each person’s situation is unique, and we consider overpayments on a case-by-case basis,” SSA said.

“If you notice that you are overpaid, you should put that money aside, because at some point they will come back for it,” Kotlikoff said finally.

Considering that 1 million people are overpaid each year, and about 70 million Americans are on Social Security, “the likelihood that you will be one of these people is quite high.”

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