If you’re new to receiving Social Security benefits, you may be shocked to find that the amount in the bank after your first payment is lower than what you were expecting. Here are five reasons you may be getting less than you anticipated:
1. You started claiming benefits before retirement age.
If you begin taking Social Security before full retirement age (66 or 67 for most people) your benefits automatically go down. Yes, in the moment it can give you some relief if you are tight on cash, but the downside is less money to count on in the future.
2. Part-time work (or not working at all) lowered your earnings average.
Social Security payments are calculated based on your 35 highest-earning years in the workforce. If you stop working or take a pay cut at any time during your employment history, those low earnings will bring down your average, leading to a decreased benefit payment.
If you were forced to work some years at part-time or at a low level to care for children or a sick family member, those years of low-earnings will bring down your average. The years you did not work at all would show as $0 earnings for the year, which would also lower your benefit payment.
3. Your Social Security benefits are partially taxable.
If you have income from another source such as pension payments, dividends and interest from savings and investments, earnings from a part-time job, or withdrawals from a traditional 401(k) or RIA, in addition to your Social Security benefits, you may have to pay tax on part of your benefit.
If the sum of your adjusted gross income, nontaxable interest and half of your Social Security benefit exceeds $25,000 as an individual and $32,000 as a married couple your benefits becomes taxable.
4. You weren’t expecting the high Medicare Part B premium.
If you sign up for Medicare Plan B, your premiums are automatically taken from your Social Security benefits. Most retirees have Medicare Part B premiums of $124 per month deducted from their check. Some high-income retirees in a higher tax bracket are surprised to find that their premiums that can be as high as $428.60 per month.
If your income has recently dropped, the IRA could be provided the SSA with outdated data, so you may be able to appeal to the SSA for a lower premium. Benefits could lower even more if you have Medicare Parts A and B in addition to a separate premium for a supplemental Medigap plan.
5. You continued to work after claiming benefits.
Some Americans decide that the dream of retirement just isn’t for them. They choose to go back to work, even if just part-time, to increase their sense of value. According to the Bureau of Labor Statistics, more than half (54.7 percent) of people ages 60 to 64 were working at least part time in 2017. Nearly a third (31.2 percent) of those aged 65-to-69 crowd were in the workforce last year.
If you decide to dip into your Social Security benefits early and are still working or return to work (even part-time), the money you make could reduce your benefits.