Social Security: 3 Reasons You Might Receive Less Than You Think

According to the National Academy of Social Insurance, Social Security benefits provide more than half of the income for more than three out of five U.S. retirees. Given how much people rely on that benefit, it’s wise to ensure you’re maximizing what you receive from the program.

The average retiree benefit in 2022 is around $1,657 per month, according to the Social Security Administration. To see how much you would be entitled to under various scenarios, you can visit and sign into your personal “my Social Security” page. The future benefits estimates it will give you will be based on your real earnings history.

However, depending on the decisions you make, you may or may not receive the full amount you’re entitled to. A few factors could reduce the size of your monthly checks, leaving you receiving less than you expect.

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1. Claiming early

The government defines your “primary insurance amount” as the amount you’ll receive if you file for Social Security at what it has set as your full retirement age (FRA). (For anyone not retired already, your FRA will be between 66 and 67.) When you check your my Social Security page, this is the amount you’ll see.

But you have the right to claim those benefits earlier than your FRA, and doing so will result in smaller monthly payments. For example, if your FRA is 67 years old but you file at age 62, your monthly benefit amount will be reduced by 30%. These reductions are permanent, too. So if you file early, be prepared to receive incrementally smaller checks for the rest of your life. You will, however, receive more checks. The reductions for claiming early are intended to create a situation so that, no matter when you start taking Social Security, if you live to an average age, you collect about the same amount overall from the program.

However, if your goal is to maximize your monthly retirement income, it may be wise to delay taking benefits. You could wait until your FRA to claim, or you could postpone until past that point, at which point you start earning “delayed retirement credits” — boosts to the size of all of your future monthly old-age benefits. These top out when you turn 70.

So, if your FRA is 67 and you file at 70, you’ll receive your primary insurance amount plus an extra 24% each month for the remainder of your retirement — the maximum possible payment the program can give you.

2. Taxes

Social Security benefits are subject to both state and federal income taxes, and this expense could potentially take a large bite out of your checks.

The good news is that 38 states don’t tax benefits. The 12 that do are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.

Fortunately, that means most retirees will be off the hook for Social Security state taxes. But the amount of federal taxes you’ll owe on that income will depend on a figure called your “combined income,” which is half of your annual Social Security benefits plus your adjusted gross income — which includes your other forms of income, such as 401(k) withdrawals.

If your combined income is higher 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.

3. Working fewer than 35 years

Your Social Security benefit amount is calculated by taking an inflation-adjusted average of your wages over the 35 highest-earning years of your career. That result is used to determine your primary insurance amount.

However, if you haven’t worked during 35 individual years by the time you claim Social Security, that will result in some years with incomes of “zero” being factored into your earnings average calculation. That will bring down your average and lower your benefit amount.

If you’re nearing retirement age, it may be worthwhile to double-check how many years you’ve worked before you claim. Sometimes working even a year or two longer can make a significant difference in the size of your monthly checks.

Social Security benefits can potentially make or break retirement for many Americans, so it pays to ensure you’re receiving as much as possible. While some factors may be out of your control, understanding how your benefits are calculated can make it easier to make the best decisions for your situation.

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