4 Sneaky Ways to Lose Your Social Security Benefits

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For many older Americans, Social Security benefits can make or break their retirement. According to a 2020 Nationwide Retirement Institute survey, roughly one in every five baby boomers says Social Security is their sole source of retirement income.

If you intend to rely on your benefits in any capacity in retirement, you should make sure you get the most out of them. There are a few unanticipated ways you could lose your benefits without even realizing it.

SOCIAL SECURITY

1. Taxation

In retirement, your Social Security benefits may be subject to both state and federal income taxes. It depends on where you live whether or not you owe state taxes, and the good news is that 38 states do not tax Social Security at all.

Your federal taxes will be based on your “combined income,” which is equal to your adjusted gross income plus half of your annual Social Security benefit amount. So, if you withdraw $30,000 from your 401(k) each year and earn $20,000 in benefits, your total annual income is $40,000 per year.

If your combined income exceeds $25,000 per year (or $32,000 per year for married couples filing jointly), you will be required to pay federal taxes on a portion of your benefits.

2. Outstanding debts

If you have certain types of unpaid debts, the Social Security Administration may withhold a portion of your benefits.

Unpaid child support, alimony, or restitution are examples of such debts. The Treasury Department may garnish your benefits to cover unpaid tax debts, withholding up to 15% of your monthly checks until you repay your debt.

3. Putting off benefits for too long

In general, delaying filing for Social Security results in a larger benefit amount. However, if you wait too long, you may miss out on money that you are owed.

You can apply for benefits at any age after the age of 62. You will receive the highest benefit amount if you delay Social Security until the age of 70. However, if you wait past the age of 70, you will not receive larger checks.

If you’re still working at the age of 70, you should file for Social Security regardless of whether you’re ready to do so. If you wait past that age to file, you will simply lose money that you are entitled to.

4. Continue to work after you claim benefits

You can continue to work after you claim benefits, but if you haven’t reached your full retirement age (FRA), a portion of your payments may be withheld.

The amount withheld from your benefits is determined by your earnings and age. If you do not reach your FRA by 2022, your Social Security will be reduced by $1 for every $2 you earn above the $19,560 annual limit. So, if you earn $25,000 per year at your job, you are $5,440 over the limit, and your benefits will be reduced by $2,720 per year.

Your earnings are subject to a different limit if you reach your FRA this year. Your payments will be reduced by $1 for every $3 you earn over $51,960 per year in this case.

These cuts, fortunately, are only temporary. The Social Security Administration will recalculate your benefit amount to account for withholdings once you reach your FRA. However, even if you are not technically losing money, if you are counting on that monthly income in retirement, you may be in for a surprise if you earn too much.

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Getting the Most Out of Social Security

Social Security benefits are frequently a significant source of income for retirees. By learning as much as possible about how the program works, you can get the most out of Social Security and enjoy a more financially secure retirement.

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