Social Security benefits can go a long way toward enjoying a financially secure retirement, but there’s a chance you may not receive as much as you think.
Your benefit amount is based on several components, including your income and the age you begin claiming. However, there are a few other factors that could potentially affect the amount you receive.
To head into retirement as prepared as possible, it’s a good idea to understand some of the sneakier ways you could potentially lose your benefits.
1. State and federal taxes
Social Security benefits are subject to both state and federal income taxes. The good news is that 37 states do not tax benefits, so there’s a chance you’re already off the hook. The states that do tax Social Security include Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia.
State taxes are only half the battle, however. Regardless of where you live, your benefits may be subject to federal taxes, too.
Whether you’ll owe federal taxes depends on something called your “combined income,” which is half of your annual benefit amount plus your adjusted gross income. If your combined income is more than $25,000 per year (or $32,000 per year for married couples filing jointly), you’ll owe federal taxes on at least a portion of your benefits.
2. You owe too much money
In some cases, the Social Security Administration can withhold a portion of your benefits if you have unpaid debt. This can include unpaid federal taxes, alimony, child support, restitution, or federal student loan debt.
In most cases, the Social Security Administration cannot garnish more than 15% of your benefits. Keep in mind, too, that your benefits cannot be withheld due to unpaid debt from private creditors, such as credit card debt, medical debt, car payments, or a private student loan.
3. You continue working after claiming benefits
You don’t necessarily have to retire when you start claiming Social Security, but if you continue working after filing for benefits, your monthly payments could be reduced.
How much your benefits are reduced will depend on your income from your job as well as your age. If you haven’t yet reached your full retirement age (FRA), your benefits will be reduced by $1 for every $2 you earn over the limit of $19,560 per year.
If you will reach your FRA this year, your earnings are subject to a different limit. In this case, your benefits will be reduced by $1 for every $3 you earn over $51,960 per year.
Say, for example, you won’t reach your FRA this year, and you’re earning $25,000 per year from your job. In this case, you’re earning $5,440 over the limit, and your benefits will be reduced by $2,720 per year — or around $227 per month.
Fortunately, these reductions are not permanent. Once you reach your FRA, the Social Security Administration will recalculate your benefit amount to account for the money that was withheld. Also, if you continue working past your FRA, your monthly payments will not be reduced no matter how much you’re earning.
Maximizing your monthly checks
For many older adults, Social Security benefits make up a significant portion of income in retirement. Regardless of how much you’ll collect in benefits, it’s wise to make sure you know whether there are any factors that could reduce your payments. The more prepared you are, the better off you’ll be in retirement.
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