Three mistakes that could cause your US pension to be less than expected

Social Security is the mainstay of many Americans' retirement budgets. Unfortunately, there are pitfalls that could cause you to lose some of your benefits, reports Yahoo.

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About half of all U.S. households with members over age 65 receive at least 50% of their household income from the program, according to data compiled by the Social Security Administration. Thus, the budgets and lifestyles of countless Americans depend largely on how much benefit they receive each month.

How not to lose this money?

1. Applying for benefits too early

Most Americans become eligible to claim Social Security retirement benefits when they turn 62, but filing as early as possible could end up costing you in the long run.

For those Americans who have not yet retired, the government defines "full retirement age" as ages 66 to 67, depending on year of birth. The Social Security Administration expects you to start receiving benefits at this age.

On the subject: How much do you need to save to live comfortably in retirement in different states?

If you file before your full retirement age, your monthly benefit will be lower than what you would have received if you retired later.

A person with a full retirement age of 67 will only receive 70% of their full benefit if they claim at age 62. On the other hand, if you wait each month to claim Social Security past your full retirement age, it benefits you a little more until you reach the maximum age of 70.

Below is what percentage of your retirement benefit you will receive in relation to your benefit when you reach full retirement age:

• 62 years old - 70%.
• 63 years old - 75%.
• 64 years old - 80%.
• 65 years old - 86.67%.
• 66 years old - 93.33%.
• 67 years old - 100%.
• 68 years old - 108%.
• 69 years old - 116%.
• 70 years or older - 124%.

While you'll receive more monthly checks over the course of your life if you file early, it's not necessarily the best strategy in the long run. A 2019 United Income study found that only 8% of retirees maximize their retirement income by filing before age 65. The optimal age to file for Social Security for the average retiree is actually 70 years old.

2. Work and benefits

Many people choose to continue working into their 60s, 70s, and even beyond. But if you continue to work while you collect Social Security benefits, you may receive smaller checks than you expect.

Anyone who receives Social Security benefits before full retirement age is subject to a Social Security earnings test. If you earn more than $2024 in 22, the government will reduce your monthly benefit by $320 for every $1 you earn above that limit. Those reaching full retirement age this year have a higher limit of $2, with a reduction of $59 for every $520 over the limit.

However, these benefits are not lost forever. The Social Security Administration will adjust your monthly payment once you reach full retirement age to make up for benefits withheld due to earnings. What's more, you can continue to work and earn any amount without penalty once you reach full retirement age.

3. Taxes

Taxes on Social Security benefits are getting harder and harder to avoid.

The IRS uses a measure called "total income" to determine what percentage of your Social Security benefits (if any) are subject to federal income taxes.

Gross income is equal to half your Social Security benefit plus your adjusted gross income from other sources and any nontaxable interest income.

If your gross income exceeds a certain threshold, part of your Social Security income is subject to tax.

• You won't pay Social Security taxes if your individual combined income is less than $25, or your combined income with your spouse is less than $000.
• You'll pay 50% tax on Social Security benefits if your individual combined income is between $25 and $000, or if you and your spouse have combined income between $34 and $000.
• You'll pay 85% tax on Social Security benefits if your individual combined income exceeds $34 and your spouse's combined income exceeds the $000 limit.

The thresholds are quite low. They have not been updated for inflation for at least 30 years. As a result, more and more retirees must pay taxes on their Social Security earnings.

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In addition, 10 states tax a portion of their Social Security benefits. Laws vary from state to state, so be sure to consult with a professional if you live in one of the states that imposes a Social Security tax.

With careful planning, you can make the most of your Social Security benefits. But if you don't follow the key rules of your benefits program, you won't get as much out of it as you could.

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