Like most things that fall into the retirement bucket, retirees often wait to think about Social Security until they decide to file a claim. However, everyone should familiarize themselves with how Social Security works well before it’s time to claim, so you can make it part of your retirement strategy and avoid surprises.
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While there are many potential mistakes that are easy to make when it comes to Social Security, I asked ChatGPT to drum up the worst reactions for retirees, so you can avoid them.
It is common to want to retire as early as possible before full retirement at age 67. However, claiming Social Security benefits at age 62, the first year you’re eligible, just because it’s available, without considering longevity, health, income needs or other assets is a big mistake for some, ChatGPT said. When you claim early, benefits are reduced – 25% to 30% compared to full retirement age, and the reduction is permanent.
ChatGPT suggested that retirees should first run claim scenarios at three stages: age 62, full retirement age and age 70. If you are healthy, have a long life expectancy and have other sources of income, delay as long as you can. Use primary benefits only if cash flow or health really needs it.
Benefits grow approximately 8% annually, adjusted for inflation, so the longer you delay, the more you get. In practical terms, ChatGPT established Social Security as a guaranteed, inflation-protected income stream rather than a short-term cash decision.
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Another mistake occurs when women claim benefits without influencing each other’s decisions. The lower-earning spouse may end up with a permanent minor survivor benefit if the higher-earning spouse claims earlier at a lower rate. It’s best to prioritize high earners who defer their benefits, whenever possible, ChatGPT advised. Survivor benefits are based on what the higher-earning spouse receives at death, making coordination especially important. Always factor survivor benefits into retirement security and model scenarios that account for both spouses’ ages.
Another common misconception is that Social Security is tax-free. Depending on how much income you have in retirement – including what you withdraw from your retirement accounts – up to 85% of benefits can be taxable depending on income. This tax is determined by “temporary income,” which includes gross income, tax-exempt interest and half of Social Security benefits.
