Your Social Security Benefits Can Be Reduced; Things You Must Know


Social Security benefits can be a significant source of income in retirement, but there’s a possibility you won’t get as much as you think. The amount of your benefit is determined primarily by your income and the number of years you’ve worked. However, a few factors could reduce the size of your monthly checks.

How to be eligible for SS benefit 

By contributing to the Social Security system during your working years, you qualify for old age (or retirement) benefits. Full insurance is based on earning 40 quarters, or “credits,” from covered wages, with a worker earning up to four credits per year. For 2021 (and $1,510 in 2022), one credit is awarded for every $1,470 in earnings, with the amount modified yearly to account for inflation.

Investopedia posted that the Social Security Administration (SSA) tracks your earnings throughout your career, indexes each year’s total earnings, and uses the 35 highest-earning years to calculate your average indexed monthly earnings (AIME). Following that, your AIME is used to calculate your primary insurance amount (PIA), which is the monthly amount you can begin collecting when you reach full retirement age.

As you plan for retirement, it’s a good idea to start thinking about these factors now, so they don’t catch you off guard later, according to Buffalo News.

1. Your benefits may be reduced as a result of taxes.

Even after you retire, your Social Security benefits may be subject to state and federal income taxes. The 13 states offer tax breaks, and your federal taxes will be based on a figure known as your “combined income.”

Your combined income is the sum of your adjusted gross income (including 401(k) withdrawals) and half of your annual Social Security benefit amount. If your combined annual income exceeds $25,000 (or $32,000 for married couples filing jointly), at least a portion of your benefits will be subject to federal taxes.

2. If you continue to work, your benefits may be withheld.

If you do not meet your FRA by 2022, your benefits will be reduced by $1 for every $2. You earn more than $19,560 per year. So, if you make $25,000 per year at your job, you are $5,440 over the limit. Your benefits would be cut by $2,720 per year or approximately $227 per month. If you reach your FRA in 2022, your earnings are subject to a different annual limit of $51,960.

3. Depending on when you file your claim, your checks may be reduced.

The age at which you file for Social Security is one of the most critical factors affecting your benefit amount. For instance, you can start claiming benefits as early as age 62, but your benefits will be reduced by up to 30%. Because this reduction is permanent, claiming early will result in smaller checks for the rest of your life.

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