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5 common Social Security mistakes to avoidA Government Accountability Office report cited five common mistakes people make when applying for Social Security.Decisions about Social Security give people fits, which isnt surprising.Its a complex program. People must make long-term decisions without knowing how the future will unfold. Plus, the Social Security Administration doesnt always explain the rules clearly and consistently.No wonder many Americans struggle with questions such as when to start taking retirement benefits — as early as age 62 or as late as 70?Those are some of the issues raised by a recent Government Accountability Office report. The watchdog agency reviewed Social Security pamphlets, sat in on meetings with the public and assessed studies and surveys. Many Americans, the GAO concluded, still make uninformed decisions about Social Security. Here are some common mistakes the report referenced:Obsessing over the break-even pointNobody wants to leave money on the table. With Social Security, there is a risk of dying before, or shortly after, you start taking retirement benefits. You might not recoup anywhere near the money you paid into the system. Thats why many people base their decision for claiming benefits mainly using a break-even analysis. Social Security benefits rise if you start taking them later. In a break-even analysis, you estimate the age at which your cumulative larger monthly benefits, from claiming them at a later age, equal the smaller monthly amounts from starting early.Suppose youre choosing between taking $1,000 a month starting at age 66 or $750 a month starting four years early, at 62. In this case, the break-even age would be 78. Thats when you would have received the same amount, $144,000, whether you started at 62 ($750 a month for 192 months) or at 66 ($1,000 a month for 144 months). If you live well past 78, the higher benefits from delaying make that the wiser choice. (This analysis excludes cost-of-living adjustments or COLAs, which shorten the break-even point. It also excludes the ability to invest benefits taken early, which can lengthen the break-even age.)Most Americans apparently dont think theyll live especially long (or worry the system will run out of money) because about 45% of Social Security recipients take the money as soon as they can, at 62. Hardly anyone waits until 70, when monthly benefits max out.Break-even analysis can influence people to claim benefits earlier than they might otherwise, in part because people fear the potential loss of benefits if they die early more than they fear outliving their retirement savings, said the report, written by Charles Jeszeck, a GAO director focusing on workplace issues.Failing to consider other factorsThere are valid reasons to start Social Security early, even if it means locking in lower benefits. Individuals in poor health might want to do this. So might those with a family history of dying early, people in physically demanding jobs and those facing limited employment prospects.Still, the GAO indicated it favors delaying benefits so that recipients can receive larger monthly sums. The report said Americans routinely underestimate life expectancy by five or more years and thereby start early. About half of todays 65-year-olds will reach age 80. One in four will hit 90.Many people also underestimate the risk of outliving their savings, the GAO added. This danger can be mitigated with the higher monthly Social Security benefits that come with delaying.Misunderstanding the retirement earnings testPeople in their 60s who continue to work while receiving Social Security payments risk losing some benefits, but the loss isnt permanent. The Social Security Administration will withhold $1 in benefits for every $2 of job income received above a certain figure ($15,720 for 2016), assuming youre below full retirement age, which ranges from 66 to 67 for most people in the workforce. In the year you reach full retirement age the reduction is less — $1 withheld for every $3 earned above $41,880 for 2016.Benefits are not forfeited but deferred, paid back later with interest, the GAO noted.Still, confusion over this issue can lead people to stop working prematurely or start benefits early. The earnings-test rule can be misinterpreted as an incentive to retire and claim benefits at age 62 or reduce earnings to stay below the earnings threshold, the report said.Not realizing that benefits might be taxableFor retirees who depend on Social Security for most or all of their income, benefits wont be taxed. But for seniors with other sources of income, taxes might apply — another topic of confusion cited by the GAO.The IRS provides information, including a worksheet on irs.gov, to determine if part of your Social Security benefits are taxable.Tax-exempt interest from municipal bonds gets included in the calculation. Also, required annual withdrawals from traditional Individual Retirement Accounts could push some of your Social Security benefits into the taxable category. For this reason, its wise to plan ahead. One possibility: Start making retirement-account withdrawals in your 60s, before claiming Social Security benefits, so that you dont have as much taxable retirement income in the same year.Not asking the right questionsThe focus of the GAO report was in assessing how well the Social Security Administration provides information, especially on when to claim benefits. Researchers found the agency does a decent job explaining the rules in pamphlets, online descriptions and calculators. The information conveyed was less consistent when Social Security representatives met in person with members of the public.If you plan to visit a Social Security office, have a list of questions ready, because they might not be covered otherwise. Ask about the potential impact of taxes, the temporary reduction in benefits if you keep working and, above all, how much your monthly payments could rise or fall depending on when you claim.We found claimants were sometimes provided information that could inadvertently influence them to claim earlier, the GAO said. Claimants were not consistently informed that monthly benefit amounts would be higher if (they) waited.Reach Wiles at or .

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