What Can Reduce My Social Security Benefits?

Social Security benefits are designed to replace only 40% of preretirement income, but many seniors rely on them to provide most of the money they need each month. In fact, according to the Social Security Administration (SSA), half of all married couples and 7 in 10 singles rely on their benefits for at least half their retirement funds.

Since Social Security is likely to be an important source of cash during your golden years, it's important to understand how actions you might take could affect the benefits you receive. Some actions -- such as remarrying, working fewer than 35 years, or working in a job in which your wages aren't subject to Social Security tax -- can reduce total benefits over your lifetime. Other actions, such as filing for benefits early or working while getting benefits, could reduce monthly benefit checks but might not reduce your total lifetime income. (Consult this guide to see how possible changes to the way Social Security benefits are calculated could also affect your income.)

Let's look at each of these in greater detail so you'll know how to get the most out of Social Security.

Image source: Getty Images.

Let's start with how much you could get

Before we get into the nitty-gritty of how your benefits could be reduced, let's look at how your benefits are determined. This all starts with understanding your primary insurance amount, or PIA.

PIA is the standard Social Security benefit -- based on your earnings -- that you'd receive if you first claim Social Security benefits at your full retirement age (FRA). While FRA was initially 65, it changed in 1983 to account for longer lifespans. It now depends on your year of birth, as the table below shows.

Data source: Social Security Administration.

Your PIA is equal to a percentage of your average indexed monthly earnings, or AIME. You can learn the details of how AIME is calculated in this guide to the Social Security benefits formula. Briefly, AIME is calculated by adding up inflation-adjusted annual wages for the 35 years you earned the most then dividing that by the 420 months in those 35 years.

Your primary insurance amount is equal to 90% of a first portion of your AIME ($926 in 2019) plus 32% of a second portion of AIME between that first dollar amount and a second one ($5,583 in 2019) plus 15% of your AIME above the second limit. So the larger your AIME, the larger your PIA. The income limits in this calculation are called bend points, and they change annually. The bend points applicable to you are those in effect in the year you turn 62; you can find bend points for other years on the SSA's website.

In some cases, your AIME will be low because you didn't work much. If you're eligible for spousal or survivors benefits, it may be possible for you to claim benefits based not on your own work record but on your current or former spouse's.

Remember, though, whether you claim on your own work record or your spouse's, certain actions could result in monthly checks being lower than PIA. As mentioned above -- and as we'll explain in more detail below -- lower monthly checks don't necessarily mean lower lifetime benefits, but sometimes they do.

You could reduce your monthly check (but not necessarily your lifetime benefits) by filing early

If you want to max out your monthly Social Security check, you must wait until age 70 to claim benefits. Claiming any time before 70 will result in reduced monthly income. However, this won't necessarily result in a reduction in lifetime Social Security income. In fact, the system is designed so that those who live to their projected lifespan based on actuarial tables get the same total benefits regardless of the age at which they claim. Those who claim early get smaller checks for more years, while late filers get larger checks for a shorter period of time.

Checks are smaller if you claim early because your PIA is reduced if you file for benefits before FRA. You can learn more about this reduction in our guide to how much filing early cuts Social Security benefits. In general, the size of the reduction depends on how early you claim: It equals 5/9 of 1% for each of the first 36 months prior to FRA and an additional 5/12 of 1% for each prior month. The table below shows how this could affect your benefits:

This reduction is applied to your PIA. If you'd have received $1,000 per month at a FRA of 66 but retire at 62, multiply $1,000 times the 25% reduction to see that your monthly check is reduced by $250. You'll receive $750 in monthly benefits if you start collecting at 62.

Even if you wait until FRA to claim benefits, you still won't max out your checks. In fact, you could forgo as much as a 32% increase in monthly income by claiming at FRA instead of waiting until 70. That's because you earn delayed retirement credits until age 70 that boost benefits above PIA. For each month you delay after FRA, benefits increase by 2/3 of 1%. The table below shows the specific impact of delaying benefits, depending on FRA.

So waiting until 70 to start taking benefits will raise your monthly check amount, but since you would miss out on eight years of checks by waiting until 70 compared with claiming at 62, you won't necessarily get more benefits during your life. It depends on whether you live long enough for your higher monthly checks to make up for years of missed benefits.

You could reduce your monthly check (but not necessarily lifetime benefits) by working while getting Social Security

It's possible to claim Social Security benefits prior to quitting work. However, if you work before you hit FRA, some of your benefits will be withheld in proportion to what you earn. This results in a reduction in Social Security income during the years you're working -- but does not necessarily lower lifetime benefits, since you ultimately get back the money the SSA didn't give you while you were still earning.

Here's what happens if you work prior to FRA:

• If you're working before the year you hit FRA, annual benefits are reduced by $1 for every $2 earned above a certain income threshold. For 2019, the income threshold is $17,640.
• If you're working in the year you hit FRA, annual benefits are reduced by $1 for every $3 earned above a higher income limit. For 2019, the limit is $46,920.

If you won't hit FRA in 2019 and you earn $44,000, you've exceeded the $17,640 limit by $26,360. The SSA will withhold benefits equal to half this amount: $13,180. If you'd have received a monthly benefit of $1,000, you'd have your entire annual check withheld. If you'll hit FRA in 2019 and earn $44,000 from working, you won't hit the income limit, so no benefits would be withheld.

When the SSA withholds benefits due to working, it doesn't take money out of each monthly check. Instead, you report estimated earnings, and the SSA withholds entire checks until you've accounted for the withheld benefits. If you'd lose $3,000 of your annual benefit because of working, and your monthly check is $1,000, you'd get no benefits checks for the first three months of the year. After that, you'd get your full $1,000 benefit.

Remember, you get credit for money withheld. When you hit FRA, the SSA recalculates your monthly benefit amount as if you had claimed Social Security later than you did, thus increasing the amount you get each month. To take a simple example:

• Say you claimed benefits 12 months prior to FRA. You'd have a benefits reduction equal to 5/9 of 1% for each of those 12 months, which is around a 6.7% annual benefits reduction.
• If you worked during that time, earned a lot of money, and ended up not actually receiving any benefits in 6 of those 12 months, you wouldn't get the 5/9 of 1% reduction for those six months.
• Instead of your PIA being reduced by 6.7%, it would only be reduced by around 3.35%

The SSA recalculates benefits when you hit FRA, so your monthly benefit check would go up by 3.35% at that time. It would take a while for your higher benefit check to make up for all the money withheld while you were working, but if you lived long enough, you'd get the same lifetime benefits you'd have received if your checks hadn't been withheld.

You could reduce monthly checks (and lifetime benefits) by working fewer than 35 years

Remember the Social Security benefits formula from above? It's based on average earnings in the 35 years when your inflation-adjusted income was highest.

If you work for less than 35 years, the SSA still considers 35 years of work history and will factor in $0 in wages for any years you weren't earning. Any zeroes lower your AIME, which lowers your PIA, reducing monthly checks. You can see examples of how this works with our guide to maxing out Social Security.

In this case, you would get lower monthly checks for your whole life due to the lower PIA, so your decision not to work all 35 years has the effect of lowering both monthly checks and lifetime benefits.

You could reduce monthly checks (and lifetime benefits) by quitting work when you're earning a lot of money

If you're approaching retirement age and earning a lot more now than you did during your first few years in the workforce, working longer than 35 years could raise your AIME as you replace some years of low wages used in your AIME calculations with some years of higher wages. This would raise your AIME and PIA.

Conversely, if you decide not to do this, you'll be settling for a PIA that's lower than what it could have been. This, too, has the effect of lowering both monthly checks and lifetime benefits.

You could reduce monthly checks (and lifetime benefits) by working certain government jobs

If you work at certain government jobs, two rules could apply to you and lower your monthly benefits. If either applies, your checks will be lower throughout your life, so you'll receive less in total benefits. The two rules are:

• The windfall elimination provision: If you work at a government job that provides you with a pension and that doesn't withhold Social Security taxes, any Social Security benefits you're entitled to from working other jobs could be reduced.
• A government pension offset: If you work at a government job that provides a pension and doesn't withhold Social Security taxes, any spousal or survivors benefits you're entitled to could be reduced.

How could the windfall elimination provision reduce your Social Security benefits?

The Social Security benefits formula explained above is a progressive formula because lower earners receive a larger share of AIME than higher earners do. If you worked at a government job and didn't pay Social Security tax on wages, you might appear to have a low income in this formula because none of your earnings from the government count toward AIME. But you might not actually have a low income if you get a hefty government pension.

The windfall elimination provision addresses this issue by reducing the 90% multiplier used in determining PIA, so you get credit for a smaller percentage of AIME below the first bend point. In fact, the multiplier could go as low as 40%.

The windfall elimination provision applies only if you had fewer than 30 years of "substantial earnings" taxed for Social Security. For 2019, you have substantial earnings if you pay Social Security tax on at least $24,675. The SSA has a table dating back to 1937 that details the substantial earnings threshold each year. As the table below shows, the percentage of AIME that counts in determining your PIA is reduced for each year you fall short of 30 years of substantial earnings.

Data source: Social Security Administration.

The windfall elimination provision can't reduce your Social Security benefits by more than half of the amount of your pension from the job at which your earnings weren't subject to Social Security tax. There is also a maximum by which benefits can be reduced. You can see the maximum reduction amount on the Social Security website for each year.

This reduction also won't apply to you if you're a federal worker first hired after Dec. 31, 1983, if your only pension is from working for a railroad, or if you only did untaxed work prior to 1957.

How could a government pension offset reduce your Social Security benefits?

If you receive a pension from a government job in which you didn't pay Social Security taxes, your Social Security spousal or survivors benefits can be offset by two-thirds of the amount of the pension you're receiving from the government.

For example, if you're eligible for a $1,100 benefit as a widow and your government pension is $600 monthly, your $1,100 Social Security benefit will be reduced by 2/3 of $600 -- or $400. Your widow's benefits would come down to $700 per month ($1,100 - $400).

You're not subject to the offset if your government pension isn't based on your earnings; if you paid Social Security taxes at your government job during the last 60 months of government service; if your last day of work at the government job was before July 1, 2004; or if you filed for and were entitled to your spousal or survivors benefits prior to April 1, 2004.

You could reduce monthly checks (and lifetime benefits) by remarrying

If you're entitled to survivors benefits based on a deceased spouse's work history or you're claiming spousal benefits based on an ex-spouse's work history, remarrying could reduce the monthly Social Security checks you'd otherwise be entitled to.

In this case, the reduction has the effect of reducing lifetime benefits, since smaller checks mean less money over the course of your life.

How remarrying after divorce could affect benefits

If you were married at least 10 years, you can claim spousal benefits based on your ex-spouse's work history as soon as you turn 62 (or earlier if you're caring for a disabled child or child under 16). You could receive up to 50% of the monthly benefit your ex is entitled to at full retirement age. You can't receive both your benefit and your spousal benefit, though -- you'll only get one or the other.

You may wish to claim spousal benefits if they're larger than your own benefit or if you didn't work long enough to become eligible for Social Security yourself. If you've been divorced at least two years, you can claim even if your ex hasn't yet filed for benefits.

However, if you remarry, you can't get benefits based on your ex's work record anymore. You could only get spousal benefits based on your new spouse's work history. So if your new spouse earned less than your ex, you could end up with a smaller Social Security benefit.

And when you're married, you can't begin receiving spousal benefits until your current spouse has claimed his or her own benefits. You might have to wait longer to claim, which could mean you get both smaller checks and fewer of them.

Conversely, if you're entitled to a higher spousal benefit under your new spouse's work record than you'd have been entitled to under your ex's, you could end up getting more total income from Social Security.

How remarrying after being widowed could affect benefits

Survivors benefits are based on your deceased spouse's work record. Like with spousal benefits, you can either get them or get benefits based on your own work record, but not both.

Survivors benefits become available as early as age 60, or as early as age 50 if you were disabled before your spouse died or within seven years of the death.

However, if you remarry prior to age 50 (if disabled) or prior to age 60, you won't be able to get survivors benefits based on your deceased spouse's work record anymore. Remarrying and losing access to these benefits could reduce your checks if your survivors benefits would've been higher than either benefits under your own work history or benefits you become entitled to via your new spouse's work record.

However, the converse is true again. If your spousal benefits under your new spouse's work record are higher than your survivors benefits would've been, you could get more total income.

Will your benefits be reduced?

Now you know about a few key things that could affect your Social Security checks, some of which will also reduce total lifetime income from Social Security. Knowing this can help you to make informed choices about when you work, when you claim benefits, and whether you'll remarry.

Since Social Security will likely make up a big part of retirement income, understanding how you might reduce your benefits is essential to protecting your financial security in your golden years.