By 2023, about 67 million Americans will receive monthly Social Security retirement benefits, according to the Social Security Administration (SSA). The average monthly benefit for all retirees in 2023 is estimated to be $1,827—a sum that represents a major source of income for some.
If you’ve saved money in a 401(k), individual retirement account (IRA) or other qualified retirement plan and are counting on Social Security to offset that, you may still be in for a shock after you do. The first payment will be received.
If you recently started receiving Social Security benefits, there are three common reasons why you may receive less than you expected: debt settlement, early withdrawal of benefits, and high income.
Key receivers
- If you have certain debts, such as back taxes or student loans, your Social Security check will be reduced.
- Taking Social Security benefits early can reduce your payments by up to 30 percent.
- Due to higher incomes, higher Medicare premiums can reduce your monthly Social Security check.
1. Compensation broke your Social Security check.
One condition that can cause lower Social Security benefits is underemployment. That’s when you owe money to the government and collect Social Security benefits. Examples of debts that may result in compensation include:
- Default student loans
- Food stamp overpayment corrections
- Home Loans for VA
- Tax return (technically a tax, but the concept is the same)
SSA rules protect the first $750 in benefits you receive. However, if the debt is determined to be yours, the SSA will reduce your benefits by a certain amount each month until the debt is paid off. Once debt settlement is complete, you will receive your full benefit amount. Meanwhile, you have to deal with temporary shortages.
You can also reduce your benefits if you receive Social Security benefits before reaching full retirement age, continue working, and earn more than certain limits. However, after you reach full retirement age, your earnings will not reduce your benefits, no matter how much you earn.
You can also reduce your benefits if you receive Social Security benefits before reaching full retirement age, continue working, and earn more than certain limits. However, after you reach full retirement age, your earnings will not reduce your benefits, no matter how much you earn.
2. Early benefits broke your Social Security check.
For most people retiring now, the full retirement age for Social Security purposes is 66 or 67, depending on the year they were born. But it’s possible to start taking Social Security retirement benefits at age 62. While that can give you some financial relief if you’re strapped for cash, there are downsides. Your benefit amount will automatically – and permanently – drop.
In the year A 2020 survey of 1,727 adults 24 and older in the U.S. by the National Retirement Institute (NRI), a subsidiary of National General Mutual Insurance Company, found that nearly three in four are baby boomers (80%) and most are Gen Xers (90%) and millennials. (97%), correctly identify the age at which they qualify for full retirement benefits. In the same study, only 45% of Millennials, 49% of Gen Xers and 69% of Baby Boomers+ correctly understood that if they took Social Security early, their benefits would be permanently reduced. The rest of the respondents wrongly thought that benefits would increase to the full amount when they reached full retirement age.
How much will it cost you to take benefits early? Let’s say your normal retirement age is 67, but you decide to apply for Social Security when you turn 62. Because you’ll be taking benefits for an additional 60 months, your Social Security check will be reduced by 30 percent.
If you are entitled to $1,000 a month, you will only get $700. That’s a significant amount of money to give up, and that check will be smaller for life. If you’re considering taking benefits early, it’s worth crunching the numbers to see how much you’ll lose by doing so.
If you wait until age 70 to start receiving Social Security benefits, you’ll get an additional 8% for each year past your full retirement age. But a claim after age 70 doesn’t increase your benefits any more, so there’s no reason to wait any longer.
If you wait until age 70 to start receiving Social Security benefits, you’ll get an additional 8% for each year past your full retirement age. But a claim after age 70 doesn’t increase your benefits any more, so there’s no reason to wait any longer.
3. Medicare premiums reduce your Social Security check
When you turn 65, you are eligible to enroll in Medicare. If you sign up for Medicare Part B, your premiums will be deducted from your Social Security benefits. The standard monthly premium for Medicare Part B enrollees is $170.10 in 2022, an increase of $21.60 from $148.50 in 2021. But it’s entirely possible to pay more if you fall into a higher tax bracket.
If you file an individual return and your income is greater than $88,000 but less than $111,000, you paid $207.90 in 2021. If your income is between $111,000 and $138,000, you pay $297. And if it’s over $500,000, the premium is $504.90.
And in 2022, single filers with income greater than $91,000 and less than or equal to $114,000 will pay $238.10 per month. If their income is greater than $114,000 and less than or equal to $142,000, they pay $340.20. If between $142,000 and $170,000, the premium is $442.30. For incomes between $170,000 and $500,000, the premium rises to $544.30. And if it’s over $500,000, the premium comes to $578.30.
If your income has recently decreased, you can appeal to SSA for a lower premium. “The IRS may be giving SSA outdated information that needs to be updated,” he says. James B. TwiningCFP, Founder and Financial Planner Inc.
In addition, the client-side provision protects beneficiaries from reductions in the previous year’s benefit level due to increases in Part B premiums. Eligibility requirements for this include:
- “You are entitled to Social Security benefits for November and December of this year.
- Medicare Part B premiums are deducted from Social Security benefits between November and January of the previous year.
- You will not pay higher Part B premiums because of income-related monthly adjustment amount (IRMAA) eligibility.
- And, they won’t receive enough of a cost-of-living adjustment (COLA) to cover the increased premiums.
Holding harmless does not apply to people if they have the following
- “You’re new to Medicare in 2022. Hold harmless doesn’t apply to you because you haven’t been enrolled long enough to be in Medicare Part B.
- You are subject to the IRMAA.
- You are enrolled in the Medicare Savings Program (MSP). However, the MSP must continue to pay the full Class B premium.
- You are enrolled in the Medicare Savings Program in 2021, but you have lost the program because your income has increased or you have not been able to recertify.”
For certain high incomes, Medicare payments are equal to 35%, 50%, 65%, 80% or 85% of the total cost of coverage.
For certain high incomes, Medicare payments are equal to 35%, 50%, 65%, 80% or 85% of the total cost of coverage.
Other factors that affect your Social Security check
If you retire before your full retirement age and your income goes up instead of down for whatever reason—if you sell a high-value property, start a profitable business, or earn a lot as a consultant or freelancer—that can hurt a lot. What you get from Social Security, at least until you reach full retirement age.
If you have Medicare Parts A and B (also known as Original Medicare) and are also paying a separate premium for a supplemental policy called a Medigap plan, your benefits may be reduced.
Fewer than one in 10 adults surveyed by the National Pension Institute understand the factors that determine the maximum Social Security retirement benefit.
Fewer than one in 10 adults surveyed by the National Pension Institute understand the factors that determine the maximum Social Security retirement benefit.
A word about reserves
Although the Social Security Fund is replenished each month by the payroll taxes of all earners, the fund’s resources are not infinite, meaning the fund may run out of money.
The 2022 SSA report shows that pension benefits will be fully paid out by 2034 under the scheduled schedule. In other words, trust fund reserves are expected to be depleted after 2034, at which point they will be only 77% of projected benefits. Payable from future taxable income. Congress will need to make changes to replenish the fund so that retirees can continue to receive full coverage.
Why will my SSI check be smaller in 2022?
If you have high incomes in retirement, your SSI check may be smaller in 2022. If this is the case, your check will be smaller because of Medicare copayments.
What determines the amount of a Social Security check?
The amount of Social Security benefits you receive depends on your lifetime earnings while you work. Your earnings have been adjusted to take into account changes in average wages since you received them. Average indexed earnings are calculated over the 35 years in which you earned the most.
What is the average amount of a Social Security check?
As of April 2022, the average monthly Social Security check was $1,666.49. The average monthly spousal benefit was $837.34.
Bottom line
Relying on Social Security to see you through retirement can put you on financial ice. If you’re making less money than you budgeted to receive, it becomes even more difficult. Taking the time to clear up unpaid debts, calculating benefits early and looking at how your income affects your benefits will help you avoid any surprises once your Social Security checks start rolling in.
