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3 Social Security Surprises That Aren't the Pleasant Kind

By Maurie Backman – Nov 14, 2021 at 6:18AM

Key Points

  • Social Security has a lot of rules that can be difficult to track.
  • You may encounter some positive surprises as you learn more about collecting benefits.
  • These surprises, however, are far from wonderful.

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Consider yourself warned.

Social Security is full of pleasant surprises. For example, did you know that the benefit you start out collecting isn't the same total you're stuck with for life? That's because seniors on Social Security are entitled to cost-of-living adjustments that could result in higher paychecks.

Here's another fun fact about Social Security. If you delay your filing past your full retirement age (FRA), you can snag an 8% boost to your benefits for each year you hold off, up until you turn 70. And that higher benefit will be yours to enjoy forever.

But while there are definitely some positive surprises associated with Social Security, there are also some less positive ones. Here are a few that could really throw you for a loop if you're not prepared.

Person at laptop holding head.

Image source: Getty Images.

1. Benefits have limited buying power

Many people assume that their Social Security benefits will replace their previous paychecks in full. Wrong.

If you're an average earner, you can expect your benefits to replace about 40% of your pre-retirement income. Meanwhile, most seniors need roughly twice that amount to keep up with their living costs. And so if you don't save for retirement on your own, you might struggle to manage your bills.

2. Benefits are subject to taxes

We just learned that Social Security won't come close to replacing your former paycheck. Well, here's some even worse news -- you may not get to keep your benefits in full.

If you're a moderate earner, you could lose a chunk of that income to federal taxes. And there are also 13 states that tax Social Security, so if you retire in one of those, you might lose even more of your money.

3. Benefits can be withheld if you work and earn too much

You're allowed to collect Social Security even while you're still working. But if you're doing so before reaching FRA, you'll risk having some of your benefits withheld if you earn too much money.

In 2022, you can you can earn up to $19,560 without that income impacting your benefits. From there, you'll have $1 in Social Security withheld for every $2 you earn.

If you'll be hitting your FRA in 2022, that limit rises to $51,960. From there, you'll have $1 in Social Security withheld for every $3 you earn.

Keep in mind that withheld benefits aren't lost forever. They're paid back to you later, once you reach FRA.

But if you claim Social Security before FRA, your benefits are reduced on a permanent basis by virtue of that alone. And so if you're going to take that hit and file early, you may want to take steps to avoid having some of that money withheld from you.

Social Security is a complex program that's loaded with rules, and so you never know when you might come across new information regarding it. While some of Social Security surprises may be welcome news, the above surprises could really mess with your finances, so it's important to prepare for them ahead of retirement.

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