Retirees are used to their Social Security payments going up. Every year, the Social Security Administration (SSA) looks at the cost of living. If it has gone up, so do benefits. Even if the cost of living declines from one year to the next, there's no cut to Social Security benefits.
Does that mean that your monthly payment from Social Security will always remain at least the same? Not necessarily. Here are five ways your Social Security payments could be reduced.
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1. Garnishments
Your creditors can get their money back by garnishing your Social Security retirement payments in some cases. In particular, if you are behind on federal student loans, your benefits could be garnished. Other reasons for potential garnishment include unpaid child support or alimony and court-ordered victims restitution.
Note, though, that private student loan lenders can't garnish your Social Security retirement payments. Supplemental Security Income (SSI) benefits also can't be garnished.
2. Overpayment offsets
If you've been overpaid by the SSA or another federal agency, your monthly payments could be reduced to collect the money you owe. This is referred to as an administrative offset.
Such offsets are more likely to be used with SSI overpayments. However, if you no longer receive SSI benefits, the SSA could withhold your previous SSI overpayments from your Social Security benefits and/or your federal income tax refunds.
3. Tax levies
Not fully paying your federal taxes can affect your Social Security payments, too. The Internal Revenue Service (IRS) can levy your Social Security benefits to recover any unpaid federal taxes that you owe. Federal law limits these levies to a maximum of 15% per Social Security payment until the tax debt is fully paid. Note that you can also voluntarily request that a percentage of your Social Security payment be withheld to pay the IRS for any federal back taxes that you owe.
4. Medicare Part B premiums
If you receive Social Security retirement benefits and are enrolled in Medicare Part B, your premiums will be deducted automatically from your Social Security payment. It's possible that higher Medicare Part B premiums could reduce your monthly Social Security payment.
The only way your Medicare Part B premiums would cause your Social Security payment to actually be lower than what you received in the past is if the annual premium increase is greater than the annual Social Security cost-of-living adjustment (COLA). This scenario typically won't happen. However, it's more likely when there is a Social Security COLA of 0% (which occurred in 2009, 2010, and 2015).
5. Nothing is done to preserve Social Security benefits
The first three ways that your Social Security benefits could be reduced won't affect most retirees. Medicare Part B premiums typically won't rise so much that they completely offset your Social Security COLA. However, there's one way that Social Security benefits could be reduced which is a looming issue and will affect every Social Security beneficiary.
As things stand now, the combined Social Security trust funds will run out of money by 2033, according to the Congressional Budget Office. Ongoing payroll taxes will still fund Social Security when that happens. However, benefits will be 25% lower beginning in 2034 if nothing is done.
The good news is that there are several alternatives that the president and Congress could enact to preserve Social Security benefits and avoid any cuts. It's possible, though, that some of those options could still result in Social Security benefit reductions for some Americans.
