Retirement is supposed to be a time of freedom, but failing to save enough during your working years can turn it into a time of serious financial instability. You might be able to ease that by working to boost your Social Security benefit. But sometimes, larger Social Security benefits carry hidden drawbacks.
Here are two scenarios where larger Social Security checks may not help you as much as you'd like.
1. Larger checks could put you at risk of owing Social Security benefit taxes
The federal government and 12 state governments tax the Social Security benefits of some seniors. How much, if anything, you owe depends on your income, annual Social Security benefit, or both. But every government has its own system for calculating benefit taxes.
The federal government taxes up to 50% of your benefit if your provisional income -- your adjusted gross income (AGI), any nontaxable interest, and half your annual Social Security benefit -- exceeds $25,000 for a single adult or $32,000 for a married couple. It will tax up to 85% of benefits for single adults with provisional incomes exceeding $34,000 and married couples with provisional incomes exceeding $44,000.
Just because you could owe this much doesn't mean you actually will. Many seniors don't owe any benefit taxes, but if you think you might, you need to plan accordingly.
Pay attention to your spending each year and, if possible, avoid exceeding the thresholds above. If you have Roth savings, these withdrawals won't affect your tax liability at all. You pay taxes on your contributions to these accounts when you make them, so the government typically doesn't tax withdrawals.
2. Larger checks could lead to wage garnishment if it's an overpayment
Social Security benefit overpayments can happen for several reasons, including incorrect information used to figure your benefit or a change in your living situation or marital status.
If the Social Security Administration accidentally pays you too much, it should notify you by mail of the mistake. It'll tell you how much you've been overpaid and offer you ways to correct the issue. Failing to do so could lead to wage garnishment or the government withholding money from your future Social Security benefits until the debt is repaid.
Seniors who have received an overpayment can choose to have money withheld from future Social Security checks until the extra money is repaid. Or they can pay the government directly via check, electronic funds transfer, or credit card.
If you believe the overpayment was not in fact an overpayment, you can appeal the decision by filing form SSA-561 and submitting it within 60 days of receiving your overpayment notice. You can also request that the government waive the collection of the overpayment if it wasn't your fault or if paying it back would cause you financial hardship.
For most people, larger Social Security checks are a good thing. But if you find yourself in either of these situations, ignoring them could have serious consequences for your finances. So take the steps discussed here as quickly as possible so you can get your finances back to normal.