Planning for your financial future, especially as you get closer to retirement, means understanding how Social Security benefits work. It’s a good idea to regularly check your Social Security benefit statement to ensure everything is correct and to understand what you can expect to receive when you retire.
However, sometimes, the actual benefit amount you receive might be less than what’s shown on your statement. There are several reasons why this can happen, and we’ll go through them below to help you better understand your Social Security benefits:
#1 Claiming Benefits Early:
Your Social Security statement estimates what you’ll get if you claim benefits at different ages. At the age of 62, you have the option to claim benefits, but if you do, you’ll get less each month than if you wait until your full retirement age, which is usually 66 or 67. If you wait until age 70, you’ll get the most monthly money.
Claiming early means you get money sooner, but you’ll get less each month.
#2 Changes in Your Earnings:
In order to calculate your Social Security benefits, your highest 35 years of earnings will be considered. If there are years you didn’t work or earn less, it will lower the amount you get each month.
The estimate on your statement assumes you’ll keep earning the same amount of money until you retire. If you stop working or earn less, your benefits will likely decrease. If you earn more, your benefits could go up.
#3 Medicare Part B Premiums:
Usually, your Medicare Part B premiums are taken out of your Social Security payment. The standard premium in 2024 is $164.90 per month, but it could be higher based on your income. If you earn more money, you might see a decrease in your Social Security benefits because of higher Medicare Part B premiums.
#4 Medicare Part D Premium Increase:
You can choose to have your Medicare Part D premiums taken out of your Social Security check. These premiums are based on your income, so you’ll pay more for this prescription drug coverage if you earn more.
You can ask your Part D drug plan to deduct these premiums from your Social Security benefits.
#5 Tax Withholding:
If you have other income besides Social Security, like a retirement account or a pension, you might have to pay taxes on your Social Security benefits. Some states and the federal government may tax your Social Security income. You can choose to have federal income tax taken from your benefits by filling out a form with the Social Security Administration.
#6 Working After Claiming Benefits:
Some of your benefits might be withheld if you claim benefits before your full retirement age and keep working. But you’ll get this money back once you reach full retirement age. Before reaching your full retirement age, for every $2 you earn above $21,240, $1 is taken out of your benefits. After reaching full retirement age, your earnings won’t affect your Social Security benefits.
Having a thorough understanding of these factors and their impact on your Social Security benefits is crucial for making well-informed decisions regarding your retirement. You will receive your monthly benefits based on a combination of each of these elements after claiming your benefits.
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