Social Security predominantly serves older retirees and disabled individuals through programs like Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI). The latter provides additional assistance to those vulnerable due to disabilities, blindness, or limited resources. In 2024, the Social Security Administration (SSA) disbursed a staggering $1 trillion to around 66 million beneficiaries every month.
Let’s take a closer look at how your Social Security benefits could potentially be reduced.
If you’re currently receiving or planning to claim Social Security benefits shortly, it’s essential to grasp the actions you take or don’t take that might reduce your share of these benefits. Read on to learn about potential scenarios that could cause your Social Security benefits to be lost partially or completely.
#1 Early Claims Might Cost You Up To 30% of Your Benefits
While the designated full retirement age is 67, opting to claim benefits at 66 and 11 months would result in receiving just 99.4% of the full payment. Claiming at 65 would lead to a further reduction, with beneficiaries receiving only 86.7% of their entitled benefits. It’s possible to claim benefits as early as 62; however, doing so would mean receiving just 70% of the full payment—a reduction that would remain permanent unless the claim is withdrawn within a year.
#2 Reduced benefits for early claimants who earned too much
Once you attain full retirement age, there are no income limitations to receive full benefits. However, claiming benefits early and continuing to earn income can lead to a reduction in your Social Security payout. By 2024, you have the potential to earn a maximum of $21,240 without any impact on your benefits. However, if you exceed this limit, the SSA will decrease your benefits by $1 for every $2 earned above the threshold. If your full retirement age falls later in the year, you can earn up to $56,520 before facing a reduction, with the SSA deducting $1 for every $3 earned over this threshold.
#3 Suspension of Payments for Incarcerated Individuals
In the case of a criminal conviction leading to a prison sentence of over 30 days, your Social Security benefits will be temporarily suspended by the SSA. Although this suspension isn’t automatic, payments can resume the month following your release. It’s important to note that while the incarcerated individual won’t receive benefits, eligible spouses and dependents will continue to receive payments during this period.
#4 Potential Benefit Reduction Due to Taxes
If you file your taxes as a single individual and earn more than $25,000 annually or file jointly and earn over $32,000, the IRS may tax up to 85% of your Social Security benefits. Additionally, a dozen states impose income taxes on Social Security benefits.
#5 Circumstances Leading to SSDI Termination
While most SSDI recipients receive benefits indefinitely, certain life events can result in the cessation of payments. Situations that might lead to the termination of SSDI benefits include:
- Return to Work: One of the common reasons for the termination of SSDI benefits is when the beneficiary returns to work. To be eligible for SSDI benefits, a claimant must be incapable of performing substantial gainful activity (SGA). As of 2024, the monthly SGA threshold is $1,470, with visually impaired individuals allowed to earn up to $2,460 monthly without exceeding the SGA limit.
- Attaining Full Retirement Age: Concurrent receipt of Social Security retirement benefits and SSDI disbursements is not permitted. When you reach full retirement age, SSDI payments cease automatically, and regular Social Security payments commence. Typically, SSDI disbursements mirror full retirement benefits, resulting in minimal change for recipients.
- Improved Medical Condition: While SSDI benefits are typically granted based on the duration of disability, the SSA is mandated to periodically review cases and medical conditions. If the medical prognosis indicates potential improvement, the SSA will reassess the situation. If improvement is uncertain but possible, the case is revisited approximately every three years. For cases with no expected improvement, a review is conducted after seven years. Recipients must inform the SSA of any improvements or returns to work.
- Incarceration: Similar to traditional Social Security, SSDI and SSI payments are suspended for individuals incarcerated for over 30 days. For SSI recipients incarcerated for more than 12 months, benefits are terminated, necessitating reapplication upon release. Individuals recently on parole are ineligible for disability benefits, as per SSA guidelines.
To protect your Social Security benefits, it’s important to be aware of the possible risks that could result in a decrease or complete loss of your benefits. By making informed decisions about when to claim benefits, managing your earnings, staying aware of tax implications, and being mindful of the circumstances that might affect SSDI payments, you can take proactive steps to preserve your financial security throughout your retirement journey. It’s crucial to remain vigilant and informed, ensuring that you make the most of the benefits you’ve worked hard to earn.