Vanguard Warns This Social Security Trap Is Costing Retirees

There are many older Americans today who are living on just Social Security. And Vanguard, citing data from the Social Security Administration, says those benefits represent about 31% of the income of people over age 65.

The problem is that many people end up filing for Social Security sooner than they should. And that decision could have a negative impact on their finances for the rest of retirement.

The earliest age to sign up for Social Security benefits is 62, but here's why Vanguard says claiming early may not be the smartest move.

Claiming early could cost you

Even though you're able to sign up for Social Security at 62, doing so may not be your best move, since it results in smaller monthly benefits compared to waiting for full retirement age (FRA), which is 67 for people born in 1960 or later.

"Just because you can collect payments immediately doesn't mean you should," Vanguard advisor Ed Campagna writes. "Your personal strategy to get the most out of Social Security should depend on many factors."

While claiming Social Security at 62 could make sense for people who do not expect a long lifespan, for those who expect a typical life expectancy or longer, an early claim could lead to less monthly income and less lifetime income. That could become even more problematic for those who lack retirement savings.

An early claim could result in withheld benefits

Campagna warns that there's another pitfall you might encounter if you claim Social Security early: the earnings test. At FRA, you could earn any amount of money without having Social Security withheld. Prior to FRA, there's an earnings limit to worry about. That limit changes every year. But exceeding it could result in having benefits withheld temporarily.

In 2026, you'll have $1 in benefits withheld per $2 in earnings above $24,480 if you do not reach FRA by the end of the year. If you do reach FRA by year-end, you'll have $1 in benefits withheld per $3 of earnings above $65,160.

That money would come back to you eventually in the form of larger Social Security checks once FRA arrives. At that point, the SSA would recalculate your monthly payments based on the amounts it withheld previously. But it's important to understand that filing early subjects you to the earnings test.

Filing early could reduce survivor benefits

Another thing to consider is that claiming Social Security early could reduce survivor benefits in your household. If you're the higher earner in your household and you pass away before your spouse, they'll be eligible for survivor benefits each month.

Those benefits equal the amount you collected monthly while you were alive. If you shrink your own benefits with an early claim, you could end up leaving your surviving spouse with a lot less retirement income.

There's a way to undo an early claim

Vanguard explains that if you end up claiming Social Security early and realize it's not the best decision, you do potentially have an out. You could withdraw your application for benefits and repay the SSA the benefits you received, provided it's been less than a year since you filed for benefits.

Keep in mind that if you go this route, you'll need to pay back any spousal benefits your spouse may have received based on your work record. You could also suspend your benefits once you've reached FRA if it's been more than a year since you filed.

In that case, your benefit amount could increase every year until you turn 70 or you start to receive Social Security again. Just know that if you suspend your benefits, that would extend to spousal benefits.

Make sure you understand the program's ins and outs

Social Security is a complex program whose rules are updated from time to time. And one thing you don't want to do is fall victim to a misunderstanding.

Vanguard points out that many people who collect Social Security have those benefits taxed. And that rule did not go away as part of the One Big Beautiful Bill Act (OBBBA), despite what some may think.

The OBBBA simply introduced a new $6,000 senior tax deduction that exempts many Social Security recipients from owing taxes on their benefits. But the OBBBA did not do away with taxes on those benefits completely.

Bottom line

Social Security remains a key income source for many retirees today. It's important to claim benefits at the right time and make a few essential moves ahead of your claim.

Before filing for benefits, make sure to verify your earnings record at SSA.gov. Underreported wages could lead to smaller monthly Social Security checks. Also model your break-even age, which is the age when you'd get the same lifetime Social Security benefit based on different claiming scenarios. That could help you decide when to file.

Finally, look at your broad financial picture when deciding when to take benefits, including the amount of retirement savings you have and whether you're able to continue working or not. Putting time and thought into your choice could help you eliminate some stress living on Social Security.

You May Also Like

$200 Bonus + Up to 5% Cash Back

Earn a $200 bonus after spending $500 on purchases in your first 3 months from account opening. Member FDIC

SPONSORED

Almost 80% of Americans Fear a Retirement Age Increase — Here’s the Real Reason Why

By FinanceBuzz Editors

10 Smart Money Moves to Retire

By FinanceBuzz Editors

The Easiest Way to Diversify Your Investment Portfolio With Fine Art

By FinanceBuzz Editors

7 Brilliant Ways to Build Wealth After 40

By FinanceBuzz Editors

5 Ways Seniors Are Throwing Away Money

By FinanceBuzz Editors

Best High-Yield Savings Accounts of August 2026

By FinanceBuzz Editors

Save Money and Get Huge Discounts on Everyday Purchases

AARP Benefits

• Huge discounts on travel, groceries, prescriptions and more
• Access to financial planning resources and health tools
• Join AARP and get 25% off with automatic renewal

Become a member now!

---

Subscribe Today

Unlock the Best Banking Deals and Bonuses

From high-yield savings accounts to cashback checking and sign-up bonuses, we bring you the best banking offers to grow your money smarter.

or

SEE TOP BANKING OFFERS →

By submitting this form you agree to receive emails from FinanceBuzz and to the privacy policy and terms