Why Your Social Security Benefit Is Sure to Disappoint You

According to the National Institute on Retirement Security, around 40% of older Americans relied solely on Social Security to provide their income during 2022. Sadly, many of these retirees are likely struggling to make ends meet.

This may be the fate of many future retirees as well — unless current workers realize the truth about their benefits early on.

The reality is, your Social Security benefit will probably end up disappointing you for four key reasons. You need to know about them ASAP so you can make plans for enough supplementary savings.

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1. Your benefit will probably be lower than you expect

The first and biggest reason you’ll likely be disappointed by your first Social Security check is that it’s likely to be much lower than you anticipate it will be. That’s the case because far too many people think their benefits are going to be enough to live on.

The reality is, Social Security is supposed to be part of a three-legged stool: Retirees were supposed to be supported by these retirement benefits but also a pension and savings. But just 6.8% of current workers get income from all three of these sources now, according to the National Institute on Retirement Security.

The bottom line is, Social Security benefits replace around 40% of preretirement income. That’s simply insufficient. You don’t want to end up surprised by how low your benefit is, so make sure you log into your mySocialSecurity account to learn the reality of your projected future benefits while there’s still time to develop other income streams.

2. You may end up having to shrink your benefit with an early claim

A Social Security claim can be made between ages 62 and 70. Claiming as late as possible results in a much larger monthly benefit. As a result, many people plan to work late into their 60s, both to save more money and to enable a delayed benefits claim.

If you’re counting on increasing the amount of your Social Security check by waiting to get your first payment until late in life, there’s a very real chance you won’t be able to make this happen. In fact, recent research revealed that 51% of current retirees ended up leaving the workforce sooner than anticipated.

Missing out on delayed retirement credits you’d planned to earn — or worse, getting hit with unexpected early filing penalties — will leave you with Social Security checks that will be a huge disappointment.

That’s especially true given that filing for benefits at 62 instead of a full retirement age (FRA) of 67 would shrink your standard benefit by 30%. You’d also give up delayed retirement credits that could have been earned between 67 and 70 that would’ve resulted in an additional 24% benefits increase.

3. Medicare premiums will probably come out of your benefit

The vast majority of retirees have Medicare premiums taken out of their Social Security checks. In 2022, these premiums cost $170.10. For retirees getting the average $1,657 Social Security benefit this year, Medicare premiums would take away over 10% of it.

Many future retirees don’t even realize that Medicare charges premiums, much less how high those costs can be — and that they can increase. When you see a big part of your benefits disappear, that can leave you disappointed, especially if your checks are already lower than you’d planned.

4. You may lose some of your Social Security income to taxes

There’s one last unpleasant surprise you could face upon claiming your Social Security benefits: You may find you lose some of the money to federal and state taxes.

State taxes are only an issue if you live in one of the 13 states that assess them. But federal taxes are taken out of benefits as soon as your provisional income exceeds $25,000 as a single tax filer or $32,000 as a married joint filer. Provisional income is taxable income plus half of Social Security checks and some nontaxable income.

A growing number of retirees lose benefits to federal taxes each year because wage growth leads to higher incomes over time, but the threshold when benefits become taxable doesn’t change. Seeing some of your hard-earned retirement benefits going to the government can be a huge disappointment, since you paid taxes on earnings all your life to become entitled to those benefits.

Unfortunately, you can’t do anything about these upsetting realities. But you can plan for them when determining what role Social Security will play in your retirement. The sooner you realize the truth about your benefits, the more secure you should be in your later years, since you can make a realistic assessment of what your retirement checks will do for you — and what other income you’ll need to make up the shortfall.

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