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8 Ways You Could Miss Out on Social Security Benefits

"Rule No.1: Never lose money. Rule No.2: Never forget rule No.1."
-- Warren Buffett

Aiming to never lose money is one way that super investor Warren Buffett has become one of the world's wealthiest people, and his two rules can be useful in our financial lives, too. It's hard to avoid losing some money in the stock market -- though, ideally, your gains will far outstrip your losses -- but when it comes to Social Security, there are ways to lose some or all of your benefits that you need to be aware of, so that you don't miss out on dollars you could have received. After all, Social Security is a critical source of retirement income, greatly affecting your future financial security.

Image source: Getty Images.

Here are eight ways you could miss out on some or all of your Social Security benefits:

1. Not maximizing your benefits

A key way to lose Social Security benefits is to end up collecting smaller benefits than you otherwise could have. That can happen if you don't understand how those benefits are calculated and you don't make the most of the formula.

The formula the Social Security Administration (SSA) uses to calculate your benefits is based on the income you earned in your 35 highest-earning working years (with those earnings adjusted for inflation). So if you have only 30 years of work when you retire, the formula will be plugging in five zeros for five years, leading to smaller checks. So if possible, aim to have a full 35 years of earnings. The following table shows the effect of having some years with zero earnings on a 35-year average:

Years of $50,000 Earnings

Years of $0 Earnings

35-Year Average

15

20

$21,429

20

15

$28,571

25

10

$35,714

30

5

$42,857

35

0

$50,000

Data source: calculations by author.

Meanwhile, the greater those earnings are, the heftier your Social Security checks will be. If you can plump up your earnings, perhaps via a temporary part-time job or by seeking raises more aggressively or even changing jobs, you may be able to increase your ultimate benefits. And if you have 35 years of earnings but some of them feature meager earnings, it can be worth working an extra year or two at a good income in order to replace some low-earning years with high-earning years.

2. Not reporting your earnings

Since your Social Security benefits are based on your earnings, you can lose out on a lot of benefits -- or all benefits -- by not reporting your earnings, or underreporting them. According to the folks at Nolo, under-reporting or failing to report earnings is the top way that people cheat on taxes. Those who are self-employed, perhaps working in the new "gig economy" or running their own businesses, are among those likely to do so.

If you're able to be sneaky on your taxes and avoid paying some by reporting less income than you actually earned, it can seem like a big win, saving you money and not really hurting anyone. Well, it can hurt our society, that runs on tax revenues, and while it can save you taxes upfront, it can also rob you of much-needed Social Security benefits in retirement.

Image source: Getty Images.

3. Not coordinating with your spouse

You can also boost your Social Security benefits by coordinating withdrawal strategies with your spouse -- or lose out on some benefits by not doing so. For example, remember that the longer you delay starting to collect benefits, up to age 70, the larger those checks will be -- and conversely, starting to collect early will leave you with smaller checks -- though many more of them. So if you and your spouse have very different earnings records, you might start collecting the benefits of the spouse with the lower lifetime earnings record early, while delaying starting to collect the benefits of the higher-earning spouse. That way, you both get to enjoy some income earlier, and when the higher earner hits 70, you can collect their extra-large checks. Also, should that higher-earning spouse die first, the spouse with the smaller earnings history can collect those bigger benefit checks.

4. Divorcing too soon

If you're divorced and were married for at least 10 years, you may be able to claim benefits based on your ex-spouse's earnings (even if that ex has remarried) -- if you've not remarried. This can be helpful if your ex earned much more than you and thus built up bigger benefits. If you're not yet divorced but are planning to split from your partner, give some thought to timing. If you can remain married for 10 years before divorcing, it can pay off financially, via Social Security benefits. Divorce too soon, and you can miss out on those benefit checks that might be bigger than yours. (Of course, don't let Social Security benefits dictate when you divorce -- but do factor it into your thinking.)

Image source: Getty Images.

5. Remarrying after a divorce

If you're enjoying Social Security benefit checks based on the earnings record of an ex-spouse, know that you'll lose them if you remarry. Once remarried, you'll be entitled to collect spousal benefits based on your current spouse's earnings record, not those of your ex-spouse. It's worth noting that if you're collecting survivor benefits tied to an ex-spouse who passed away, you won't lose those by remarrying, as long as you don't remarry until age 60 or later.

6. Working too much

Another way to miss out on Social Security benefits is to work too much if you claim early. If you're planning to start collecting benefits before your full retirement age (which is 66 or 67 for most of us) and you want to work some then, too, be careful -- because after a certain point, your benefits may be reduced. The SSA explains: "If you're younger than full retirement age during all of 2017, we must deduct $1 from your benefits for each $2 you earn above $16,920." The year you reach your full retirement age, the earning limit jumps to $44,880, and the penalty decreases to $1 withheld for every $3 earned above the limit. Fortunately, though, the money withheld isn't lost. Instead, it's factored into the benefit checks you receive later, which end up increased.

7. Defaulting on student loans

Here's another way to lose Social Security benefits: Default on some debts, and your benefits may be garnished. Specifically, up to 15% of Social Security benefits may be taken for debt repayment -- and that has been happening to many thousands of Americans, often because of student loan debt and often because the retirees in question co-signed loans for their children or grandchildren.

Image source: Getty Images.

8. Politicians taking it away

Finally, a last way that you can lose Social Security benefits is if our leaders in Washington let the program continue on its path to eventual depletion of funds. That's likely to happen around 2034, at which point payment checks won't disappear, but they'll likely shrink by roughly 25%, according to the Social Security Administration, leaving beneficiaries with about 75% of what they were expecting.

The situation is far from hopeless, as there are lots of ways that the Social Security system can be strengthened, if politicians choose to do that -- some more pleasant than others. Hiking the full retirement age to 69, for example, is a less popular option. Alternatively, it's estimated that fully 76% of the trust funds' shortfall could be eliminated by increasing the Social Security tax rate for employers and employees from 6.2% to 7.2% in 2022 and to 8.2% in 2052. Taxing all of each worker's income, instead of just the first $127,200 of it, would also wipe out much of the shortfall. It's been estimated that 74% could be wiped out by eliminating the earnings cap over a 10-year period.

There are lots of ways that you can lose some or all of your Social Security benefits. It's worth acquainting yourself with the ways, so that you don't fall victim to any of them needlessly.

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