There's nothing better than retiring when you know there's a steady check coming in every month. And that's exactly what Social Security provides.
While there's a lot of information out there about the various claiming options, ages, and other benefits Social Security provides, there's also lots of stuff that people don't know. To protect yourself from unwanted surprises, here are four things that people don't tell you about Social Security that are very important to know.
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1. Your monthly amount isn't permanent
Every year, the Social Security Administration (SSA) calculates the amount you'll receive at your full retirement age (FRA), which is 67 for those born after 1960. And it's pretty well known that you can start collecting anytime between ages 62 and 70 but would get a smaller amount if you file earlier than your FRA and a higher amount if you file later. But did you know that once you file, your payment isn't set in stone?
Each year, Social Security recipients receive a cost-of-living adjustment (COLA), which adds money to their checks so they can keep up with inflation. Sometimes that rate is zero, but retirees will generally receive some increase.
And there's another way your check can increase. Social Security bases your monthly benefit on the highest 35 years of income during your working years. But if you keep working after you start collecting Social Security and your current income is higher than one of those 35 years that the SSA used to previously calculate your benefit, your monthly amount will increase. That's cool news for people who spent time out of the workforce to raise a family.
2. Payments arrive on a set day each month
Many people assume they'll receive their checks on the first day of the month. But that assumption is wrong. Social Security pays out benefits based on your birth date, as follows:
| Day of Birth | When You'll Receive Your SS Check |
|---|---|
| 1st through 10th | Second Wednesday of the month |
| 11th through 20th | Third Wednesday |
| 21st through 31st | Fourth Wednesday |
Source: Social Security Administration. Chart by author.
No one receives their payment on the first day of the month. Sorry.
3. You can have Medicare premiums deducted from your check
Once you sign up for Medicare, you'll need to pay monthly for that benefit. And once you start collecting Social Security, your Part B Medicare premium will automatically be deducted from your monthly benefit. If you aren't expecting that, you might be surprised by a smaller check once you start Medicare coverage.
However, there's also Part D: prescription drug coverage. You can pay that premium directly to your insurance company or have it deducted, along with your Part B premium, from your Social Security check. This makes things a lot easier, but you'll need to contact your Part D insurer to let them know that's what you want.
4. Benefits might be taxed!
Once upon a time, people received their Social Security benefits tax-free. That all changed in 1983, when Congress passed a rule stating that up to 50% of your benefits could be taxed. Then in 1993, Congress passed another law allowing up to 85% of your benefits to be taxed. Not all fairy tales end happily ever after.
If that weren't painful enough, 12 states add taxes of their own to your benefits. If you want to pay as little tax as possible, plan to retire in states other than Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, or West Virginia.
Social Security is a lifeline for many retirees, and some people need every penny of their checks to live on. That's why it's important to know about any possible changes that could occur to your monthly amount, including upsides (COLAs) and downsides (taxes), along with other stuff people don't tell you. By knowing these things, you'll be better prepared to plan accordingly and manage your retirement cash flow.
