When one reaches retirement age we like to think that the benefit we have been assigned after years of hard work is and will remain entirely ours, but there are many ways in which your Social Security benefits can be reduced, and while some of the reasons may be easy to track and understand, others can be unexpected, especially given that most people only retire with benefits once.
While there can be many reasons for a benefit reduction, there are mainly three that will affect pensioners if they are not careful or they do not take their circumstances under account.
The three most common reasons why your Social Security Retirement Benefits are reduced:
1. You owe money to the government
While you can sometimes declare bankruptcy and get rid of most of your debts before retirement, when you owe money to the government it is not as easy as they can garnish some of your Social Security check in order to satisfy your debt. Of course, the government understands that you still need to live off your pension, so the first $750 in benefits you receive will never be garnished, but if you receive more than that, and most pensioners do, the Social Security Administration will garnish your benefits until the federal debt is repaid in full. Once it has been repaid, you will once again be entitled to your full pension. Some of the debts that can cause benefit garnishment are:
- Defaulted student loans
- Food stamp overpayment corrections
- Social Security overpayment corrections
- Home loans owed to the U.S. Department of Veterans Affairs (VA)
- Back taxes
2. Early Benefits Shrank Your Social Security Check
Choosing when to retire is a very complex issue, as oftentimes it has more to do with your health and ability to work full time than with a desire to leave the workforce. Full retirement age for adults today is between 66 or 67 years old depending on their date of birth, but this is not the earlies you can claim benefits, and it is not the original retirement age of 65 that most people are familiar with.
The earliest age that one can claim benefits is 62 years old. Anyone who choses to step down from the workforce before then for “early retirement” will not receive government benefits. If you choose to retire at this age, your benefits will be permanently cut by 30% and no amount of cost of living adjustments will bring them up to what you would have received had you waited until Full Retirement Age.
Given that healthcare is one of the highest expenses that retirees have, especially if they left the workforce because of an inability to work, waiting to retire until at least 65 when they will have about 90% of their benefit plus Medicare coverage is a smarter move.
3. Medicare Premiums Shrank Your Social Security Check
As we have stated, Medicare coverage does not start until age 65, but the premiums of whatever plan you choose are directly deducted from your Social Security benefits. Just enrollment in Medicare Part B costs in 2024 $174.70, but some with higher incomes will have to pay more. Single filers with incomes greater than $103,000 in 2024 and less than or equal to $129,000 may pay an average of $244.60 per month. The average price continues to rise until you reach an income of $500,000 or more. You could pay $594 per month in that case.
The opposite is also true though, if you are on a lower income bracket, you might get a discount on your healthcare costs, as said James B. Twining, CFP, founder, and CEO of Financial Plan Inc. explains “If your income has recently dropped, you may appeal to the SSA for a lower premium. The IRS may be providing the SSA with older data that needs to be updated.”