Social Security benefits are nothing short of critical for most of us in retirement. Consider that nearly half of unmarried elderly Social Security recipients and a fifth of married ones get 90% or more of their retirement income from Social Security. Overall, Social Security generates about a third of the average retiree's income.
It's vital, therefore, to collect all the benefits you're entitled to from the program, and not to lose any Social Security benefits. Take some time to learn how you might increase your Social Security benefits -- and read on for some ways that you might lose them.
No. 1: Keep working while you're retired and still young
One way to lose some of your Social Security benefits is to earn more than a certain amount while working before you hit your "full retirement age." That full retirement age is 66 or 67 for most of us, and it's the age at which you're entitled to start collecting the full benefits to which you're entitled. (You can start collecting as early as age 62, in which case your benefits will be smaller, or as late as age 70, which give you bigger retirement checks.) Doing so will result in some of your Social Security dollars being withheld.
The Social Security Administration (SSA) offers the full details below:
- If you're younger than full retirement age during all of 2020, we must deduct $1 from your benefits for each $2 you earn above $18,240.
- If you reach full retirement age during 2020, we must deduct $1 from your benefits for each $3 you earn above $48,600 until the month you reach full retirement age.
It's not quite as bad as it seems, though, because those dollars are merely withheld, not forfeited. The withheld sums get factored into your benefits calculations, increasing the benefits you'll receive later. And once you reach your full retirement age, the withholding stops entirely.
No. 2: Delaying starting to collect -- too long
As noted above, if you delay starting to collect your benefits, you can increase them -- by about 8% for each year beyond your full retirement age that you delay. So if your full retirement age is 67 and you delay until age 70, you can boost your retirement checks by about 24% -- enough to turn a $2,500 check into a $3,100 one.
It's important to remember that once you hit age 70, you should stop delaying and should start collecting -- because there will be no more 8% bumps.
Know, too, that while delaying as long as possible -- up to age 70 -- is smart for many people, it's far from possible for millions of Americans, and in many cases, starting to collect early makes plenty of sense. Read up on the topic and make an informed decision when the time comes.
No. 3: Being retired in 2034
Here's another way that you might lose out on Social Security benefits: If the entire program isn't bolstered in some way(s) by the government in the coming years. That's because, according to various government reports, Social Security funds are on course to be depleted by 2034 -- if no changes are made.
That certainly sounds ominous, but it's not quite as bad as it sounds. At that point, the funding for Social Security won't disappear, but the program will no longer be running a surplus -- collecting more from taxes on workers' incomes than it pays out to retirees in benefits. Thus, it's estimated that benefit checks may shrink to just 77% of what they otherwise would be. That 23% reduction is serious -- especially when so many depend so critically on Social Security -- but at least it's not a 100% cut.
There are also plenty of ways that the program could be strengthened between now and then. For example, incomes could be taxed in their entirety, instead of just having the first $137,700 be taxed for Social Security, as is now the case. (That number is for 2020 -- it changes every year.) Another option would be increasing the Social Security payroll tax by a percentage point or two.
Our government's leadership currently seems more predisposed to shrink Social Security than beef it up, but a change in leadership may turn that around. You might also let your representatives in Washington know now what your thoughts are on the matter.
The more you know about Social Security, the more you'll likely be able to collect from the program that you've been supporting via your taxes for so many years.