If you think you're the only one interested in your Social Security benefits, think again. There are plenty of interested parties -- the government, scammers, and debt collectors to name a few -- who would love to get their hands on as much of your benefits as they can.
So you need to know what to avoid in order to keep your benefits in your pocket. Below, I explain five ways that you can lose them, so hopefully that won't happen.
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1. Social Security benefit tax
Social Security benefit tax is different from the Social Security tax you pay during your working years. The benefit tax could force you to give a portion of your check back to the government if you earn over a certain amount. It comes down to your combined income, which is your adjusted gross income (AGI) -- your income minus some tax deductions -- plus any nontaxable interest you have and half your Social Security benefits.
If your combined income exceeds $25,000 for an individual or $32,000 for a married couple, you could owe taxes on up to 50% of your Social Security benefits. The government could tax up to 85% of them if your combined income exceeds $34,000 for an individual or $44,000 for a married couple. But just because you could owe taxes on that much doesn't mean you will. Here's a more in-depth guide to Social Security benefit tax.
You might be able to avoid benefit taxes if you're careful about how much you spend every year. But not everyone can get around them. If you believe you'll owe taxes on your benefits, try to estimate how much using the guide above so you aren't surprised when you file your taxes.
2. Claiming benefits too early
You can claim Social Security as early as 62. But if you expect to live into your mid- to late 80s or beyond, which is increasingly common, claiming benefits as soon as you're eligible might not be your best move.
You must wait to claim benefits until your full retirement age (FRA) -- between 66 or 67, depending on your birth year -- to get the full benefit you're entitled to based on your work record. Every month that you start early reduces your checks. You only get 70% of your scheduled benefit per check if you have an FRA of 67 and begin benefits at 62. Those with an FRA of 66 will get 75% if they start at 62. You can also delay benefits past your FRA and your checks will increase every month until 70, at which point you'll get 124% of your scheduled benefit per check if your FRA is 67 or 132% if your FRA is 66.
Starting later means fewer checks, but could mean more money over your lifetime if you live long enough. Consider someone with an FRA of 67 who expects to live until 90. If they get a $1,200 monthly benefit by claiming at their FRA, they'd receive $331,200 over their lifetime. If they start at 62, that's five more years of benefits, but they'd only get $840 per check. That would give them $282,240 overall. If they delay benefits until 70, they'd only get 20 years of benefits, but they'd receive $1,488 per month for a lifetime benefit of $357,120.
3. Earning too much while claiming benefits before your FRA
The Social Security earnings test could temporarily cost you benefits if you're claiming Social Security before your FRA. If you're short of your FRA for all of 2020 and you earn more than $18,240 this year, the government will take $1 from your Social Security check for every $2 you make over this amount. If you will reach your FRA in 2020 and you earn more than $48,600 before your birthday, the government will take $1 from your checks for every $3 you earn over this amount.
This money isn't gone forever. You'll get smaller checks now, but once you reach your FRA, the government recalculates your benefit to include the money it withheld from you before, and you'll then get larger checks.
4. Scams targeting your benefits
Scammers prey on benefit recipients by posing as Social Security Administration (SSA) officials. They might send a fake letter or call to tell you that your Social Security number has been suspended or that you owe a debt and must give a bank account number to continue receiving benefits. Or they might tell you that you're eligible for a benefit increase if you'll just hand over your financial information. Then, once you've given it to them, they'll quietly take your benefits right out of your account.
The SSA does occasionally send letters or call people, but they'll never threaten you, and you should be suspicious about anyone requesting financial information over the phone. Don't give out your personal information, and contact the SSA if you're unsure whether the correspondence was legitimate. Don't use any contact methods provided by the possible scammer; look up phone numbers or email addresses on your own or visit your local Social Security office.
5. Benefit garnishment
Most debt collectors are prohibited from touching your Social Security benefits, but there are three key exceptions to that rule: The federal government, your ex-spouse, and your kids. Your benefits are fair game for them if you're not keeping up with your obligations.
If you owe back taxes, the federal government can garnish up to 15% of your Social Security benefits per month until your debt is paid. It can also do the same for federal student loans you've defaulted on, garnishing up to 15% of your benefits, but in this case, it cannot reduce your monthly checks below $750.
As for unpaid child support and alimony, the government can garnish up to 50% of your Social Security benefits if you are supporting a spouse or a child other than the spouse or child covered by the court order. If you are not supporting a second family, the government can take up to 60% of your benefits. You could lose an additional 5% of your benefits if you're 12 or more weeks behind on your payments.
The SSA will notify you 60 days before it begins garnishing your benefits. You have the right to dispute it with the IRS or your state court if you believe your benefits are being erroneously garnished, but ultimately, the government decides. To avoid this messy situation, just stay on top of any tax, student loan, alimony, or child support payments you have.
For questions about your benefits and how to hold on to more of them, ask your local Social Security office. In most cases, once you've lost your benefits, you won't get them back again, so carefully think through the implications of your financial decisions.
